Reporting Finance Lease, Guaranteed ResidualLessee

On the first day of its accounting year, January 1, 2020, Lessee Inc. leased a building at an annual payment of $208,272 to be paid at the beginning of each year for 10 years. The first payment was paid immediately. The building, which is new, cost $1,650,000 and has an estimated useful life of 12 years. The lessors implicit rate is 6% and is known to Lessee Inc. The residual value of the building of $45,000 was guaranteed by Lessee Inc. who expects the residual value to approximate $30,000. Lessee Inc. incurred the following additional costs and received the following incentives pertaining to this lease:

• Paid legal fees of $1,500 related to the execution of the lease.
• Paid a fixed lease payment of $208,272 plus a $5,250 recurring payment to the lessor for hazard insurance on the building.
• Received a lease incentive of $2,250 to sign the lease.

a. How would Lessee Inc. classify the lease? Amortization Schedule Value of Right-of-Use Asset Journal Entries Value of Lease Liability b. Prepare an amortization schedule of the lease liability. Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Note: Include any net rounding difference to Lease Liability in the Interest on Liability amount for Jan. 1, 2030. Interest Reduction of on Liability Lease Liability Lease Liability $ Lease Date Payment Jan. 1, 2020 Jan. 1, 2020 $ Jan. 1, 2021 Jan. 1, 2022 Jan. 1, 2023 Jan. 1, 2024 Jan. 1, 2025 Jan. 1, 2026 Jan. 1, 2027 Jan. 1, 2028 Jan. 1, 2029 Jan. 1, 2030 Total $ $ $