P21-8 (L02,4) (Lessee Computations and Entries, Finance Lease with Guaranteed Residual Value) data as in P21-7 and that Chambers Medical Center has an incremental borrowing rate of 5% and an expected residual value at the end of the lease of $10,000

21-7 information was as follows:

Amirante Inc. manufactures an X-ray machine with an estimated life of 12 years and leases it to Chambers Medical Center for a period of 10 years. The normal selling price of the machine is $495,678, and its guaranteed residual value at the end of the non-cancelable lease term is estimated to be $15,000. The hospital will pay rents of $60,000 at the beginning of each year. Amirante incurred costs of $300,000 in manufacturing the machine and $14,000 in legal fees directly related to the signing of the lease. Amirante has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 5%.

Instructions

1. (a) Discuss the nature of this lease in relation to the lessee, and compute the amount of the initial lease liability.

2. (b) Prepare a 10-year lease amortization schedule.

3. (c) Prepare all of the lessees journal entries for the first year.

4. (d) Suppose Chambers Medical Center incurred $7,000 of document preparation costs after the execution of the lease. How would the initial measurement of the lease liability and right-of-use asset be affected?