On January 1, 2010, Swiss, Inc. entered into a 3-year, non-cancelable lease for equipment. Details of the agreement follow:

i. The equipment has an estimated economic life of six years.

ii. The lessor routinely leases this type of equipment to other companies.

iii. The three lease payments are $32,972.07 each, payable January 1, 2010, 2011, and 2012.

iv. Fair value of the asset on January 1, 2010 is estimated to be $150,000, which is also the carrying amount on the lessors books.

v. The lease does not contain a renewal or purchase options, and the asset reverts to the lessor at the end of the 3 year period.

vi. The assets unguaranteed residual value is estimated to be $57,882 at the end of the lease term.

vii. The lessees incremental borrowing rate is 5%.

viii. The accounting year ends December 31 for both Swiss and for the lessor.

ix. The lessors implicit interest rate, the rate that equates the present value of the payments to the assets fair value, is 5% and is known by the lessee.

Required:

Answer the following questions from the perspective of Swiss, Inc. (Lessee).

a. Prepare a lease liability amortization schedule. Include in the schedule the amount of amortization each year of the right-of-use asset.

b. Prepare Swiss journal entries related to the lease for 2010, 2011, and 2012.

c. Show the impact of the lease on Swiss balance sheet (including current/noncurrent classification) and income statement in each year.