On Jan 1, 2022, Baton Corporation signed a five-year noncancelable lease for equipment from Bram.

The terms of the lease called for Baton to make annual payments of $50,000 each Jan 1, beginning with Jan 1, 2022 for five years with the equipment going back to the lessor at the end of this period.

The equipment has an estimated useful life of 5 years and no salvage value.

Baton accordingly accounts for this lease transaction as a finance lease.

The minimum lease payments were determined to have a present value of $208,493 at an effective interest rate of 10%.

Bram manufactured the equipment for $155,000. For Bram, it is a sales type lease.

Record Batons (Lessee) journal entries for 1/1/22, 12/31/22, 1/1/23, 12/31/23.

Record Brams (Lessor) journal entries for 1/1/22, 12/31/22, 1/1/23, 12/31/23.