Reporting Operating Lease-Lessee On January 1, 2020, Lessee Inc. leased equipment at an annual payment of $238,277 payable at the beginning of each year for 4 years. The equipment had a fair value of $1,120,000, a book value of $1,050,000, and was commonly purchased or leased by customers. The lessor estimates that the equipment has an estimated useful life of 8 years and an estimated residual value of $350,000, not guaranteed by the lessee. Lessor's implicit rate is 7.5%, which is unknown to the lessee. The lessee's incremental borrowing rate is 8%. The lease does not contain a purchase option or a renewal option. The lessee had no other costs associated with this lease. a. How would Lessee Inc. classify the lease? Operating Lease Amortization Schedule of Lease Liability Amortization Schedule of Right-of-Use Asset Journal Entries 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, 2027. Date Lease Payment Interest Reduction of on Liability Lease Liability Lease Liability Amortization Schedule of Lease Liability Amortization Schedule of Right-of-Use Asset Journal Entries 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, 2027. Date Jan. 1, 2020 Lease Payment Interest Reduction of on Liability Lease Liability Lease Liability $ 852,340 Jan. 1, 2020 $ 238,277 0 $ 238,277 614,063 Jan. 1, 2021 238,277 49,125 189,152 424,911 Jan. 1, 2022 238,277 33,993 204,284 220,627 Jan. 1, 2023 238,277 17,650 220,627 0 Total $ 953,108 $ 100,768 $ 852,340 Amortization Schedule of Lease Liability Amortization Schedule of Right-of-Use Asset Journal Entries c. Prepare an amortization schedule of the right-of-use asset. Date Straight-Line Expense Interest on Liability Amortization of Right-of-Use Asset Right-of-Use Asset Jan. 1, 2020 $ 852,340 Year 2020 $ 0 x $ 49,125 $ 0 x 0 x Year 2021 0 33,993 0 0 Year 2022 0 17,650 0 * 0 x Year 2023 0 0 0 0 Total $ 0 * $ 0 x $ 0 x Check Date Account Name Jan. 1, 2020 Right-of-Use Asset Lease Liability To record lease liability and right-of-use asset Jan. 1, 2020 Lease Liability Cash To record lease payment Dec. 31, 2020 Lease Expense Lease Liability Jan. 1, 2021 Right-of-Use Asset To record lease expense Lease Liability Cash To record lease payment Dec. 31, 2021 Lease Expense Lease Liability Right-of-Use Asset To record lease expense Dr. Cr. 852,340 0 0 852,340 238,277 0 0 238,277 0 x 0 49,125 0 0 238,277 0 0 238,277 0 x 0 0 33,993 0 0 x