On January 1, Year 1, lessor leases equipment to lessee. Data on the lease: Equipment fair value and lessor's book value, $25,771 (asset is new) Lessor's implicit rate and lessee's implicit borrowing rate, 8% Lease payments due each December 31 through Year 3 (three-year lease term) Useful life of equipment, three years (no residual value) Payments are due at the end of the year (ordinary annuity). The lessee guarantees a residual value of $3,000 associated with the asset at the end of the lease term.

The leased asset is expected to have a residual value of $2,000.

1. Lessor's Calculation of Lease Payments with Residual Value

2. Lessee's Calculation of Present Value of Minimum Lease Payments

3. Lessee Amortization Schedule of the Lease Liability.

4. Journal Entry: Lessee Inception and Year 1 Interest and Amortization