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P21-3B (L02,4) GROUPWORK (Lessee Entries and Balance Sheet Presentation, Finance Lease) Licorice Fabricating Company, as lessee, signed a lease agreement for equipment for 6 years,
P21-3B (L02,4) GROUPWORK (Lessee Entries and Balance Sheet Presentation, Finance Lease) Licorice Fabricating Company, as lessee, signed a lease agreement for equipment for 6 years, beginning December 31, 2017. Annual rental payments of $22,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 6%; Licorice's incremental borrowing rate is 9%. Licorice is unaware of the rate being used by the lessor. At the end of the lease, Licorice has the option to buy the equipment for $3,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Licorice uses the straight-line method of depreciation on similar owned equipment. Instructions (Round all numbers to the nearest dollar.) (a) Prepare the journal entry or entries, with explanations, that Licorice should record on December 31, 2017. (b) Prepare the journal entry or entries, with explanations, that Licorice should record on December 31, 2018. (Prepare the lease amortization schedule for all six payments.) (c) Prepare the journal entry or entries, with explanations, that Licorice should record on December 31, 2019. (d) What amounts would appear on Licorice's December 31, 2019, balance sheet relative to the lease arrangement
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