Sheffield Incorporated leases a piece of equipment to Shamrock Corporation on January 1, 2017. The lease agreement called for annual rental payments of $5,424 at the beginning of each year of the 4-year lease. The equipment has an economic useful life of 6 years, a fair value of $27,400, a book value of $22,400, and both parties expect a residual value of $8,100 at the end of the lease term, though this amount is not guaranteed. Sheffield set the lease payments with the intent of earning a 4% return, and Shamrock is aware of this rate. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature.

1)Determine the nature of the lease to both Sheffield and Shamrock.

2)

3)Prepare the journal entries for Shamrock for 2017 and 2018.

4) Suppose Shamrock incurs initial direct costs of $800 related to the lease. Prepare the journal entries for 2017.

List of accounts usable:

Accounts Payable Accumulated Depreciation-Building Accumulated Depreciation-Leased Building Accumulated Depreciation-Capital Leases Accumulated Depreciation-Equipment Accumulated Depreciation-Leased Equipment Accumulated Depreciation-Leased Machinery Accumulated Depreciation-Machinery Advertising Expense Amortization Expense Airplanes Buildings Cash Cost of Goods Sold Deferred Gross Profit Deposit Liability Depreciation Expense Equipment Executory Costs Executory Costs Payable Gain on Disposal of Equipment Gain on Disposal of Plant Assets Gain on Lease Insurance Expense Interest Expense Interest Payable Interest Receivable Interest Revenue Inventory Land Leased Asset Leased Buildings Leased Equipment Lease Expense Leased Land Lease Liability Lease Receivable Lease Revenue Legal Expense Loss on Capital Lease Machinery Maintenance and Repairs Expense Notes Payable Prepaid Lease Executory Costs Prepaid Legal Fees Property Tax Expense Property Tax Payable Rent Expense Rent Payable Rent Receivable Rent Revenue Revenue from Sale-Leaseback Right-of-Use Asset Salaries and Wages Expense Sales Revenue Selling Expenses Trucks Unearned Profit on Sale-Leaseback Unearned Lease Revenue Unearned Service Revenue

Prepare the lease amortization schedule(s) for Shamrock for all 4 years of the lease. (Round answers to O decimal places, e.g. 5,175) SHAMROCK CORPORATION Lease Amortization Schedule Annuity-Due Basis Reduction of Date Annual Payment Interest on Liability Lease Liability Lease Liability 1/1/20 Lease Expense Schedule Lease Expense Interest on Amortization of Carrying Value of Date (Straight-Line) Lease Liability ROU Asset ROU Asset 12/31/17 12/31/18 12/31/20