Problem 15 18 (Algo) Initial direct costs sales type lease LO15 2, 15 7 Lahiri Leasing purchased a single engine plane for its fair value of $913,952 and leased it to Red Baron Flying Club on January 1, 2024 Note Use tables, Excel, or a financial calculator (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Terms of the lease agreement and related facts were Eight annual payments of $160,000 beginning January 1, 2024, the beginning of the lease, and on each December 31 through 2030 Red Baron knows that Lahiri Leasings implicit interest rate was 11 The estimated useful life of the plane is eight years Payments were calculated as follows Amount to be recovered (fair value) $ 913,952 Lease payments at the beginning of each of the next eight years ($913,952 5 7122 Footnote asterisk) $ 160,000 Present value of an annuity due of $1 n 8, i 11 Red Baron's incremental borrowing rate is 12 Incremental costs of negotiating and consummating the completed lease transaction incurred by Lahiri Leasing were $24,996 Required How should this lease be classified (a) by Lahiri Leasing (the lessor) and (b) by Red Baron (the lessee) Prepare the appropriate entries for both Red Baron Flying Club and Lahiri Leasing on January 1, 2024 Prepare an amortization schedule that describes the pattern of interest expense over the lease term for Red Baron Flying Club Determine the effective rate of interest for Lahiri Leasing for the purpose of recognizing interest revenue over the lease term Prepare an amortization schedule that describes the pattern of interest revenue over the lease term for Lahiri Leasing Prepare the appropriate entries for both Red Baron and Lahiri Leasing on December 31, 2024 (the second lease payment) Both companies use straight line depreciation or amortization Prepare the appropriate entries for both Red Baron and Lahiri Leasing on December 31, 2030 (the final lease payment) Complete this question by entering your answers in the tabs below How should this lease be classified (a) by Lahiri Leasing (the lessor) and ( b ) by Red Baron (the lessee)

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Problem 15-18 (Algo) Initial direct costs; sales-type lease [LO15-2, 15-7] Lahiri Leasing purchased a single-engine plane for its fair value of $913,952 and leased it

Problem 15-18 (Algo) Initial direct costs; sales-type lease [LO15-2, 15-7]

Lahiri Leasing purchased a single-engine plane for its fair value of $913,952 and leased it to Red Baron Flying Club on January 1, 2024.

Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Terms of the lease agreement and related facts were

Eight annual payments of $160,000 beginning January 1, 2024, the beginning of the lease, and on each December 31 through 2030. Red Baron knows that Lahiri Leasings implicit interest rate was 11%. The estimated useful life of the plane is eight years. Payments were calculated as follows:

Amount to be recovered (fair value)	$ 913,952
*Lease payments at the beginning of each of the next eight years: ($913,952 5.7122Footnote asterisk)**	$ 160,000

*Present value of an annuity due of $1: n = 8, i = 11%.

Red Baron's incremental borrowing rate is 12%.
Incremental costs of negotiating and consummating the completed lease transaction incurred by Lahiri Leasing were $24,996.

Required:

How should this lease be classified (a) by Lahiri Leasing (the lessor) and (b) by Red Baron (the lessee)?
Prepare the appropriate entries for both Red Baron Flying Club and Lahiri Leasing on January 1, 2024.
Prepare an amortization schedule that describes the pattern of interest expense over the lease term for Red Baron Flying Club.
Determine the effective rate of interest for Lahiri Leasing for the purpose of recognizing interest revenue over the lease term.
Prepare an amortization schedule that describes the pattern of interest revenue over the lease term for Lahiri Leasing.
Prepare the appropriate entries for both Red Baron and Lahiri Leasing on December 31, 2024 (the second lease payment). Both companies use straight-line depreciation or amortization.
Prepare the appropriate entries for both Red Baron and Lahiri Leasing on December 31, 2030 (the final lease payment).

Complete this question by entering your answers in the tabs below. How should this lease be classified (a) by Lahiri Leasing (the lessor) and ( b ) by Red Baron (the lessee)