Question dealing with leases (lessor and lessee) from the book, Intermediate Accounting by Donald E. Kieso, Jerry J. Weygandt and Terry D. Warfield (Mar 11, 2013) .

Nickle leased equipment to Back Company on January 1, 2016. Lease payments of $18,000 are due each year beginning Jan 1, 2016. The present value of the lease payments discounted at 10% was $120,000. The asset's useful life is 12 years. Nickle acquired this equipment for $120,000 on Jan. 1, 2016 for the purpose of this lease.

REQUIRED

1. Following the guidance of the new ASU, prepare the journal entries to record the lease by Nickle (lessor) at January 1, 2016, at December 31, 2016, at January 1, 2017 and Dec 31, 2017. Assume the risks and rewards of ownership were presumed transferred to the lessee.

2. Following the guidance of the new ASU, prepare the journal entries to record the lease by Back (lessee) at January 1, 2016, at December 31, 2016, at January 1, 2017 and Dec 31, 2017. Assume the risks and rewards of ownership were presumed transferred to the lessee.