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Part 2: On January 1, Year 1, Leases R Us (LRU) leased equipment to Multi Manufacturing. The equipment is commonly used in Multi's industry. LRU
Part 2: On January 1, Year 1, Leases R Us (LRU) leased equipment to Multi Manufacturing. The equipment is commonly used in Multi's industry. LRU purchased the equipment at a cost of $420,000. The fair value of the equipment is $500,000, and the useful life is 12 years. The lease term is 8 years, with annual payments of $71,857 due on January 1 of each year, beginning on January 1, Year 1. The rate implicit in the lease is 8%. LRU believes that the collectability of payments is probable. 1. For each of the following assumptions, classify the lease for LRU, showing all work. II. For assumption 3 only, prepare any necessary journal entries for Year 1. Assumption 1: The lease includes residual value of $100,000, of which $60,000 is guaranteed by Multi, and Multi is like to have to pay this $60,000. Assumption 2: The lease includes residual value of $100,000 that is not guaranteed by Multi, but is guaranteed to LRU by a third party. Assumption 3: The residual value of $100,000 is not guaranteed to LRU
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