On Jan. 1, 2021, Ford Motor Company leased a fleet of 50 vans to Amazon Corporation. The lease agreement specifies that Amazon will make six annual payments of $600,000 beginning Jan. 1, 2021, the beginning of the lease and at each December 31 from 2021 through 2025. The six-year lease term is equal to the estimated useful life of the vehicles. Ford manufactured the fleet of vehicles at a total cost of $2,500,000. Using an interest rate of 10%, Ford calculates the present value of the lease payments to be received as $2,874,474. (This amount was calculated by multiplying the $600,000 annual payments x 4.79079 which is the present value of an annuity due where n = 6, i = 10%). Please show any calculations that are needed when responding to the following questions.

1. This lease should be classified as (circle the correct one):

• Finance / Sales Type Lease with no profit
• Finance / Sales Type Lease with a profit
• Operating Lease

2. Provide the journal entry that Ford (lessor) would record at the beginning of the lease on Jan. 1, 2021 regarding the right to use asset.

3. Provide the additional journal entry that Ford (lessor) would record at the beginning of the lease on Jan. 1, 2021 regarding the first $600,000 payment.

Question #2 (continued)

4. Provide the journal entry that Amazon (lessee) would record at the beginning of the lease on Jan. 1, 2021 regarding the right to use asset.

5. Provide the additional journal entry that Amazon (lessee) would record at the beginning of the lease on Jan. 1, 2021 regarding the first $600,000 payment.

6. Provide the journal entry that Ford (lessor) would record on Dec. 31, 2021 at the time of the second $600,000 lease payment.

7. Provide the journal entry that Amazon (lessee) would record on Dec. 31, 2021 at the time of the second $600,000 lease payment. (Hint: Be sure to include the amortization expense.)