Please do both questions. I will accept it only if i get more than 90. Question is attached

Assignment 8 Chapter 20 Due April 1st Marshall Enterprises agrees to lease equipment to Burlington Corporation on June 30, 2016. Both Marshall and Burlington use ASPE. The following information relates to the lease agreement. 1. The lease term is six years, with no renewal option, and the equipment has an estimated economic life of eight years. 2. The equipment's cost is $330,000 and the asset's fair value on June 30, 2016, is $435,000. 3. At the end of the lease term, the asset reverts to Marshall, the lessor. The asset is expected to have a residual value of $45,000 at this time, and this value is guaranteed by Burlington. Burlington depreciates all of its equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on June 30, 2016. 5. Marshall usually sells its equipment to customers who buy the product outright, but Burlington was unable to get acceptable financing for an outright purchase. Marshall's credit investigation on Burlington revealed that the company's financial situation was deteriorating. Because Burlington had been a good customer many years ago, Marshall agreed to enter into this lease agreement, but used a higher than usual 9% interest rate in setting the lease payments. Burlington is aware of this rate. 6. Marshall is uncertain about what additional costs it might have to incur in connection with this lease during the lease term, although Burlington has agreed to pay all executory costs directly to third parties. 7. Marshall incurred legal costs of $7 ,500 in early June 2016 in finalizing the lease agreement. Required: (a) Discuss the nature of this lease for both the lessee and the lessor. (b) Using time value of money tables, a financial calculator, or computer spreadsheet functions, calculate the amount of the annual rental payment that is required. Show your work. (c) Prepare the journal entries that Burlington would make in 2016 and 2017 related to the lease arrangement, assuming that the company has a December 31 fiscal year end and that it does not use reversing entries. (d) From the information you have calculated and recorded, identify all balances related to this lease that would be reported on Burlington's December 31, 2016 balance sheet and income statement, and where each amount would be reported. (e) Prepare the journal entries that Marshall would make in 2016 and 2017 related to the lease arrangement, assuming that the company has a December 31 fiscal year end and does not use reversing entries. (f) From the information you have calculated and recorded, identify all balances related to this lease that would be reported on Marshall's December 31, 2016 balance sheet and income statement, and where each amount would be reported. (g) Comment briefly on the December 31, 2016 reported results in parts (d) and (f) above. Question two On January 1, 2016, Hershey Corporation sells equipment to Capital Finance Corp. for $570,000 and immediately leases the equipment back. Both Hershey and Capital use ASPE. Other relevant information is as follows. 1. The equipment's carrying value on Hershey's books on January 1, 2016, is $510,000. 2. The term of the non-cancellable lease is 8 years. Title will transfer to Hershey at the end of the lease. 3. The lease agreement requires equal rental payments of $95,456.60 at the end of each year. 4. The incremental borrowing rate of Hershey Corporation is 8%. Hershey is aware that Capital Finance Corp. set the annual rental to ensure a rate of return of 7%. 5. The equipment has a fair value of $570,000 on January 1, 2016, and an estimated economic life of 10 years, with no residual value. 6. Hershey pays executory costs of $6,000 per year directly to appropriate third parties. Required (a) Prepare the journal entries for both the lessee and the lessor for 2016 to reflect the sale and leaseback agreement. No uncertainties exist and collectability is reasonably certain. (b) What is Hershey's primary objective in entering a sale-leaseback arrangement with Capital Finance Corp.? Would you consider this transaction to be a red flag to creditors, demonstrating that Hershey is in financial difficulty This is a capital lease to Burlington since the lease term is greater or equal to 75% of the economic life of the leased asset. A) Lease term is 75% (6/8) For Marshall, the collectibility of the lease payments is not reasonably predictable, and there are important uncertainties surrounding the costs yet to be incurred. The fair value of $435,000 of the equipment exceeds the lessor's cost of $330,000, the lease cannot be recorded as a sales-type lease by Marshall and must be recorded as an operating lease. B) Annual rental payment using financial computer Pv $ (435,000) I 9% N 6 PMT ? FV 45,000 83,476 C) 30-Jun-16 Equipment under lease 435,000 Obligations under Lease Obligations under Lease Cash 435,000 83,476 83,476 31-Dec-16 Depreciation Expense 32,500 Acc. Depreciation-Leased Equip (435,000-45,000)/6*6/12 Interest Expense Interest Payable (435,000-83476)*0.09*6/12 15,819 30-Jun-17 Obligations under Lease Interest Expense Interest Payable Cash (435,000-83,476)*0.09*6/12 32,500 51,838 15,819 15,819 15,819 83,476 31-Dec-17 Depreciation Expense 65,000 Accumulated Dep-Leased Equi (435,000-45,000)/6 65,000 Interest Expense 13,486 Interest Payable [(435,000-83,476-51838)*0.09*6/12] 13,486 Questions D and F are done together below (E) 30-Jun-16 Rental Equipment Inventory Cash 330,000 330,000 Unearned Rent Revenue Legal Expense* Cash 31-Dec-16 Unearned Rent Revenue Rent Revenue (83,476*6/12) Depreciation Expense Accumulated Depreciation-rental (330,000-45,000)/6*6/12 30-Jun-17 Unearned Rent Revenue Rent Revenue (83476*6/12) Cash Unearned Rent Revenue 31-Dec-17 Depreciation Expense Accumulated Depreciation-rental (330,000-45,000)/6 83,476 83,476 7,500 7,500 41,738 41,738 23,750 23,750 41,738 41,738 83,476 83,476 47,500 47,500 31-Dec-17 Unearned Rent Revenue Rent Revenue ($83476X 6/12) 41,738 41,738 * If the amounts are significant, these costs might be capitalized and amortized to expense to achieve better matching with revenues Q. D and F (d) Burlington Capital Lease Statement of financial position: Property Plant & Equipment: Equipment under lease $435,000 Rental equipment Less: Accumulated depreciat ($32,500) 402,500 Current Liabilities: Interest payable 15,819 Current portion of obligation 51,838 Unearned rent revenue Long term liabilities: Obligations under lease Less: Current portion (f) Marshall Operating Lease $330,000 ($23,750) 306,250 41,738 351,524 ($51,838) 299,686 Statement of income: Rent revenue Depreciation expense Interest expense Legal expense $32,500 15,819 $41,738 23,750 7,500 (g) The collection risk under which the lessor, Marshall is operating do not justify the recognition of income under a sales type lease.Under the terms of its lease with Burlington there are too many uncertainties related to costs and collections. Guarantee of the residual value by the lease Burlington, should not be considered in the calculations as that company's financial situation may make them unable to justice on the guarantee. Question no 2 Hershey Corporation (lessee) 570,000 1-Jan-16 Cash Equipment (net) 510,000 Deferred Profit on Sale- Leaseback 60,000 Equipment under Lease Obligations under Lease 570,000 570,000 Lease should be treated as a capital lease because present value of minimum lease payments equals the fair value of the equipment. The lease term in greater than 75% of the economic life of the asset, and the title transfers at the end of the lease Using Financial Computer PV I N Pmt FV ? 570,000 7% 8 95,456.60 0 Operating Expenses 6,000 Accounts Payable or Cash 31-Dec-16 Deferred Profit on Sale-Leaseback Depreciation Expense (60,000/10) 31-Dec-16 Depreciation Expense 57,000 Acc. Depre-Leased Equip (570,000/10) Interest Expense Obligations under lease Cash 6,000 6,000 6,000 57,000 39,900 55,556.60 95,456.60 Partial Lease Amortization Schedule Date Annual Lease payment Interest(7%) Amortization Balance Jan 1,2016 570,000 31-Dec-16 95,456.60 39,900 55,556.60 514,443.4 Jan 1 2016 Equipment Acquired for lessee Cash Capital Finance Corporation 570,000 570,000 Lease Receivable Unearned interest Income Equipment Acquired for lessee (95,456.60*10) 31-Dec-16 Cash 954,566 384,566 570,000 95,456.60 Lease Receivable Unearned interest Income Interest Income 95,456.60 39,900 39,900 Lease should be treated as a direct financing lease because the pv of the minimum lease payments equals the fair value of the equipment. (B) Primary reason to enter into a slae-leaseback arrangemnt for its equipment is to borrow cash. Creditors won't view this action as a red flag because the gain on the sale is being deferred and amortized