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Problem (10 points). On January 1, 20X3, Bonnet Corporation (lessor) and William Company (lessee) agree to an eight year lease for equipment that has an
Problem (10 points). On January 1, 20X3, Bonnet Corporation (lessor) and William Company (lessee) agree to an eight year lease for equipment that has an economic useful life of fifteen years. The first payment was made on January 1, 20X3, for $6,000. After this, seven more annual payments are due. The purchase price to Bonnet Corporation was $30,000. William Company uses straight line depreciation and assumes zero salvage value. William Company's incremental borrowing rate is 10%, which is also the rate implicit in the lease. Collectibility of the lease payments is relatively certain and there are no uncertainties as to future costs to the lessor. REQUIRED: (1) (2) Is this a capital lease or an operating lease? Provide an explanation for your answer. Prepare all journal entries, in proper general journal form, for the first two years of the lease for both parties. Indicate the appropriate date of the entry and provide a brief explanation for the entry
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