On December 31, 2021, Yard Art Landscaping leased a delivery truck from Branch Motors. Branch paid $35,000 for the truck. Its retail value is $50,721. The lease agreement specified annual payments of $14,000 beginning December 31, 2021, the beginning of the lease, and at each December 31 through 2024. Branch Motors interest rate for determining payments was 10%. At the end of the four-year lease term (December 31, 2025) the truck was expected to be worth $13,000. The estimated useful life of the truck is five years with no salvage value. Both companies use straight-line amortization or depreciation. Yard Art guaranteed a residual value of $5,000. Yard Arts incremental borrowing rate is 10% and is unaware of Branchs implicit rate. A $2,000 per year maintenance agreement was arranged for the truck with an outside service firm. As an expedient, Branch Motors agreed to pay this fee. It is, however, reflected in the $14,000 lease payments.(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: a. How should this lease be classified by Yard Art Landscaping (the lessee)? b. Calculate the amount Yard Art Landscaping would record as a right-of-use asset and a lease liability. c. How should this lease be classified by Branch Motors (the lessor)? d. Show how Branch Motors calculated the $14,000 annual lease payments. e. Calculate the amount Branch Motors would record as sales revenue. f. Prepare the appropriate entries for both Yard Art and Branch Motors on December 31, 2021. g. Prepare an amortization schedule that describes the pattern of interest expense over the lease term for Yard Art. h. Prepare an amortization schedule that describes the pattern of interest revenue over the lease term for Branch Motors. i. Prepare the appropriate entries for both Yard Art and Branch Motors on December 31, 2022. j. Prepare the appropriate entries for both Yard Art and Branch Motors on December 31, 2024 (the final lease payment). k. Prepare the appropriate entries for both Yard Art and Branch Motors on December 31, 2025 (the end of the lease term), assuming the truck is returned to the lessor and the actual residual value of the truck was $2,000 on that date.

Req a,b,c,e
a. This lease should be classified by Yard Art as a	_________
b. The amount Yard Art Landscaping would record as a right-of-use asset and a lease liability would be	_________
c. This lease should be classified by Branch Motors as a	_________
e. The amount Branch Motors would record as sales revenue would be	_________

Req d
Lessor's calculation of lease payments
Amount to be recovered (fair value)	_________
Less: Present value of the guaranteed residual value	_________
Amount to be recovered through periodic lease payments	_________
Lease payments at the beginning of each of the next 4 years	_________
Add: Maintenance costs	_________
Lease Payments including Maintenance costs	_________

Reqf General Journal Debit Credit Date December 31,2021 Record the beginning of the lease for Yard Art. Record the lease payment for Yard Art. December 31,2021 Record the beginning of the lease for Branch Motors. December 31, 2021 Record cash received by Branch Motors December 31,2021 Regg Lessee's Amortization Schedule Date Payments Effective Interest Decrease in Balance Outstanding Balance 2021 2022 2023 2024 Totals Reqh Lessor's Amortization Schedule Date Payments Effective Interest Decrease in Balance Outstanding Balance 2021 2022 2023 2024 Totals Reg General Journal Debit Credit Date December 31,2022 Record the maintenance expense for Yard Art. Record the lease payment for Yard Art. December 31,2022 Record amortization of the right-of-use asset for Yard Art. December 31,2022 Record the cash received on lease by Branch Motors. December 31, 2022 Reqi General Journal Debit Credit Date December 31, 2024 Record the maintenance expense for Yard Art. Record the lease payment for Yard Art December 31, 2024 Record amortization of the right-of-use asset for Yard Art December 31,2024 Record the cash received on lease by Branch Motors. December 31, 2024 Reqk General Journal Debit Credit Date December 31,2025 Record the maintenance expense for Yard Art. Record amortization of the right-of-use asset for Yard December 31,2025 Record the last payment on lease for Yard Art December 31,2025 Record the last cash receipt on lease and settlement December 31,2025