QUESTION ONE

1. What are the advantages of leasing to the lesseee?
2. The following facts pertain to a noncancellable lease agreement between Weber leasing Company and Zagat Company, a lessee.

Inception date: April 1, 2010

Annual lease payment due at the beginning of each year,beginning

with April 1, 2010 sh. 18,589.67

Bargain purchase option price at end of lease term sh. 4,000.00

Lease term 5 years

Economic life of leased equipment 10 years

Lessors cost sh. 73,000.00

Fair value of asset at April 1, 2010 sh. 80,000.00

Lessors implicit rate 10%

Lessees incremental borrowing rate 10%

The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs.

Required:

1. Discuss the nature of this lease to Zagat Company.
2. Discuss the nature of this lease to Weber Company.
3. Prepare a lease amortization schedule for Zagat Company for the five year lease term.
4. Prepare the journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2010 and 2011. Zagats annual accounting period ends on December 31. Reversing entries are used by Zagat.