Question
On January 1, 20X1, Lessor Corporation leased a piece of equipment to Lessee Company. Information regarding the non-cancelable lease agreement is as follows: Lease term
On January 1, 20X1, Lessor Corporation leased a piece of equipment to Lessee Company. Information regarding the non-cancelable lease agreement is as follows:
Lease term is equal to 3 years
Estimated economic life of the asset is equal to 3 years
The lessee's incremental borrowing rate is 10%
The interest rate implicit in the lease is 9% (this is known by the lessee)
Rent payments of $70,197 are due on January 1st of each year
The cost of the asset to the lessor is $160,500.
The asset's fair market value at the inception of the lease is $207,000.
The residual value is assumed to be $17,250 and is not guaranteed by the lessee
Required:
Assume that the lease qualifies for sales-type lease treatment for Lessor Corporation and a finance lease for Lessee Company. Prepare the entries necessary to record the lease for both companies for 20X1 and 20X2.
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