Recording Entries for Finance Lease: Lessee

Lessory Corporation, a manufacturer of equipment, enters into a lease of specialized equipment with LesseeX Corp. Title to the asset remains with Lessory Corp upon lease expiration. LesseeX Corp does not guarantee the residual value of the specialized equipment at the end of the lease term, and the lease contains no renewal or purchase options. The following information pertains to the lease.

Lease term	5 years
Economic life of the leased equipment	6 years
Annual lease payments	$1,098
Payment date	Annually on January 1
Fair value of the leased equipment	$5,200
Lessory Corps carrying value of the leased equipment	$4,500
Rate implicit in the lease (known by lessee)	6.02%
Estimated fair value of the equipment at the end of the lease term	$400

a. Determine the classification of the lease to LesseeX Corporation.

Finance, Operating, or Sales-type Lease

b. Prepare an amortization schedule of the lease liability

Date	Lease Payment	Interest on Liability	Reduction of Lease Liability	Lease Liability
Jan. 2, 2020
Jan. 2, 2020
Jan. 2, 2021
Jan. 2, 2022
Jan. 2, 2023
Jan. 2, 2024
Jan. 2, 2025
Jan. 2, 2026
Jan. 2, 2027
Total

c. Provide all journal entries relating to the lease for LesseeX Corporation for 2020 and 2021.

Date	Account Name	Debit	Credit
Jan. 1, 2020
	To record asset and liability related to lease

Date	Account Name	Debit	Credit
Jan. 1, 2020
	To record lease payment

Date	Account Name	Debit	Credit
Dec. 31, 2020
	To record interest

Date	Account Name	Debit	Credit
Dec. 31, 2020
	To record amortization

Date	Account Name	Debit	Credit
Jan. 1, 2021
	To record lease payment

Date	Account Name	Debit	Credit
Dec. 31, 2021
	To record interest

Date	Account Name	Debit	Credit
Dec. 31, 2021
	To record amortization