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On January 1, 20X0, Jerusalem Leasing Corporation (lessor) purchased ten pieces of heavy equipment at a price of $8,002,390. Jerusalem immediately leased the equipment to

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On January 1, 20X0, Jerusalem Leasing Corporation (lessor) purchased ten pieces of heavy equipment at a price of $8,002,390. Jerusalem immediately leased the equipment to the Israel Mining Company on the same date. The lease calls for eight annual payments of S1,500,000 to be made at the beginning of each year, beginning on January 1, 20XO. The equipment has a remaining useful life of eight years. The lease contract contains no renewal clause, and there is no bargain purchase option in the lease contract. The equipment reverts back to Jerusalem at the end of the lease and there is no guaranteed residual value required by the lessee for the equipment. The collectibility of the payments is reasonably certain, and there are no important uncertainties regarding unreimbursable costs to be incurred by the lessor. The lessor has established a rate of return of 10% in the lease REQUIRED: (1) (2) (3) What method must Jerusalem Leasing Corporation use to account for this lease? Explain Prepare an amortization schedule for the lease for Jerusalem Leasing Corporation. Round all calculations to the nearest whole dollar Prepare all general journal entries, in good form, required under the lease for Jerusalem Leasing Corporation for 20X0 and 20X1. Assume that Jersualem has a calendar year for its fiscal year. Provide a brief explanation for the entry being made (4) Assume that the collectibility of the payments under the lease contract is not reasonably certain and that the lessor uses straight line depreciation for recording depreciation on its assets. (a) What method must Jerusalem Leasing Corporation used to account for this lease under these circumstances? Explain (b) Prepare the general journal entries, in good form, required under the lease for Jerusalem Leasing Corporation for 20X0 and 20X1 under the lease. Provide a brief explanation for the entry being made How much income before tax will Jerusalem Leasing Corporation recognize in total over the lfe of the lease under this set of (c) circumstances? Show supporting calculations (d) Is the amount in (c) above the same as, more than, or less than the total amount of income before tax that is recognized under the original set of circumstances? Explain

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