Problem 3. Following are the terms of a lease entered into on January 1, 2020. [LC] FMV of asset at inception of lease $500,000.00 Estimated residual value of asset at lease temination $80,000.00 Portion ofresidual value guaranteed by Lessee $50,000.00 Lessor's amortized cost of asset at inception of lease $500,000.00 Duration oflease 2 yrs Lease payment amount $230,458.00 Frequency of payments annually First payment due at inception of lease? Yes Purchase option that Lessee is reasonably certain to exercise? No Title transfers to Lessee at any time during or at end of lease? No Lessor's implicit rate 12% Lessee's incremental borrowing rate 12% Does Lessee know Lessor's implicit rate? yes Remaining economic life of asset 5 yrs Economic life of asset when new 5 yrs Specialized use asset with no alternative use to Lessor at end of lease? Nonlease components included in lease payment? Initial direct costs incurred by Lessor (assume recorded by Lessor in Misc. Expenses when incurred) Initial direct costs incurred by Lessee (assume recorded by Lessor in Misc. Expenses when incurred) Lessor's fiscal year end 12/31 Lessee's fiscal year end 12/31 Required 1. For the following lease prepare amortization schedule and lease-related entries booked by Lessor and Lessee over the entire lease term. no no none none Complete the amortization schedule by entering the appropriate values in the green boxes Lessee amortization schedule: date pmt interest principal balance 1/1/2020 1/1/2020 12/31/2020 $230,458 $230,458 Lessor amortization schedule date interest principal balance pmt 1/1/2020 1/1/2020 $230,458.00 12/31/2020 $230,458.00 12/31/2021 Enter your entries below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box. Entries by Lessee at inception of lease on 1/1/2020: Account Debit Credit 1 1 1 1 Entries by Lessor at inception of lease on 1/1/2020: Account Debit Credit 2 2 2 2 Entries by Lessee at 12/31/2020: Account Debit Credit 3 3 3 mm Entries by Lessor at 12/31/2020: Account Debit Credit 4 4 4 Entries by Lessor at 12/31/2021: Account Debit Credit 5 5 5 5 Entries by Lessee at 12/31/2021: Account Debit Credit 6 6 2. Redo Lessor's entry to book the lease on January 1, 2020 assuming that the Lessor's amortized cost of the asset is $400,000 Enter your entries below. Choose the account from the drop-down list in the yellow cell. Enter the amount of the entry in the green box. Entries by Lessor at inception of lease on 1/1/2020: Account Debit Credit 7 7 7 7
