Question 23

Blossom Company, as lessee, enters into a lease agreement on July 1, 2021, for equipment. The following data are relevant to the lease agreement:

1.		The term of the noncancelable lease is 4 years, with no renewal option. Payments of $900,171 are due on July 1 of each year.
2.		The fair value of the equipment on July 1, 2021 is $3,220,000. The equipment has an economic life of 6 years with no salvage value.
3.		Blossom depreciates similar machinery it owns on the sum-of-the-years'-digits basis.
4.		The lessee pays all executory costs.
5.		Blossom's incremental borrowing rate is 10% per year. The lessee is aware that the lessor used an implicit rate of 8% in computing the lease payments.

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Indicate the type of lease Blossom Company has entered into and what accounting treatment is applicable. Finance Lease MethodOperating Lease Method

Prepare the journal entries on Blossom's books that relate to the lease agreement for the following dates: (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 5,250.)

1.		July 1, 2021.
2.		December 31, 2021.
3.		July 1, 2022.
4.		December 31, 2022.

Date	Account Titles and Explanation	Debit	Credit
July 1, 2021December 31, 2021July 1, 2022December 31, 2022
July 1, 2021December 31, 2021July 1, 2022December 31, 2022
	(To record amortization.)
July 1, 2021December 31, 2021July 1, 2022December 31, 2022
	(To record interest payment.)
July 1, 2021December 31, 2021July 1, 2022December 31, 2022
July 1, 2021December 31, 2021July 1, 2022December 31, 2022
	(To record amortization.)
July 1, 2021December 31, 2021July 1, 2022December 31, 2022
	(To record interest payment.)