Question
On January 1, 20X4, Masons an equipment manufacturer, entered into a new arrangement, as the lessor, to lease equipment with the following terms: An annual
On January 1, 20X4, Masons an equipment manufacturer, entered into a new arrangement, as the lessor, to lease equipment with the following terms:
An annual lease payment of $80,000 is due at the beginning of each year.
The lease term is six years.
At the end of the lease, there is a guaranteed residual value of $25,000.
The lease has an implied interest rate of 5.4%.
The equipment has a cost of $345,000, which is included in inventory.
The selling price of the equipment is $460,000, which represents fair market value.
The economic useful life of the equipment is eight years.
Required
a) Determine the classification of the lease.
b) Prepare all the journal entries for 20X4 related to this lease. Note that Masons has a December 31 year end.
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