Problem 4 Excel Format Lockhard Corporation entered into a lease agreement on January 1, 2019, to provide Cominsky Company with a piece of equipment. The terms of the lease agreement were as follows:

1. The lease is to be for 3 years with the rental payments of $10,521 to be made at the beginning of each year.

2. The equipment has a fair value of $55,000, a book value of $40,000, and an economic life of 8 years.

3. At the end of the lease term, both parties expect the equipment to have a residual value of $30,000 none of which is guaranteed.

4. The lease does not transfer ownership at the end of the term, does not have a bargain purchase option, and the asset is not of specialized nature.

5. The implicit is 6%, which is known by Cominsky.

6. Collectability of payments is probable.

Instructions:

1. Using the lease classification tests, determine the nature of this lease. You must provide supporting reasons for your classification of the lease to receive full credit.

2. Prepare the amortization schedules for Cominsky will use over the lease term.

3. Prepare the 2019 journal entries for Cominsky.

4. Prepare the 2019 journal entries for Lockhard.