On January 1, 2016, Ryan Company leased equipment to Brady Corporation. The following information pertains to this lease.

The term of the non cancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease.

Equal rental payments of $41,451.82 are due on January 1 of each year, beginning in 2016.

The fair value of the equipment on January 1, 2016, is $200,000, and its cost is $150,000.

The equipment has an economic life of 8 years, with an unguaranteed residual value of $10,000. Brady depreciates all of it equipment on a straight-line basis.

Ryan sets the annual rental to ensure an 11% rate of return. Brady incremental borrowing rate is 12%. The implicit rate of the lessor is not known to Brady.

Collection of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by the lessor.

a. Discuss the nature of this lease to Brady.

b. Prepare all the necessary journal entries for Brady through January 1, 2017.

c. Discuss the nature of this lease to Ryan.

d. If the cost of this lease had been $200,000, how with this have changed your answer to Part (c)?

e. Had the title of the lease transferred at the end of the lease, how with this have changed your depreciation calculation for Brady?