Question
On January 1 of Year 1, Lessee Inc. leased equipment at an annual payment of $63,824, payable each January 1 for four years, with the
On January 1 of Year 1, Lessee Inc. leased equipment at an annual payment of $63,824, payable each January 1 for four years, with the first payment due immediately. The equipment had a fair value of $300,000 and a book value of $281,250, and was commonly purchased or leased by customers. The lessor estimates that the equipment has an estimated useful life of eight years and an estimated residual value of $93,750, not guaranteed by the lessee. Lessors implicit rate is 7.5%, which is unknown to the lessee. The lessees incremental borrowing rate is 8%. The lease does not contain a purchase option or a renewal option. The lessee had no other costs associated with this lease.
a. How would Lessee Inc. classify the lease? b. Prepare a schedule of the lease liability for the 4-year lease term. - Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Please answer all parts of the question. c. Prepare a schedule of the right-of-use asset for the 4-year lease term. - Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Please answer all parts of the question. d. Prepare the entries for Lessee Inc. on January 1 and December 31 of the first two years of the lease term, assuming Lessee Inc.'s accounting year ends December 31 . - Note: Round your answers to the nearest whole dollar. Please answer all parts of theStep by Step Solution
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