Splish Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to Blossom Airlines for a period of 10 years. The normal selling prick of the equipment is $262,235, and its unguaranteed residual value at the end of the lease term is estimated to be $21,000. Blossom will pay annual payments of $37,600 at the beginning of each year. Splish incurred costs of $184,300 in manufacturing the equipment and $3,800 in sales commissions in closing the lease. Splish has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 10%. Blossom Airlines has an incremental borrowing rate of 10%.

1. Discuss the nature of this lease in relation to the lessee, and compute the amount of the initial lease liability.
2. Prepare a 10-year lease amortization schedule.
3. Prepare all of the lessee's journal entries for the first year. Assume straight-line depreciation.

Splish Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to Blossom Airlines for a period of 10 years. The normal selling prick of the equipment is $262,235, and its unguaranteed residual value at the end of the lease term is estimated to be $21,000. Blossom will pay annual payments of $37,600 at the beginning of each year. Splish incurred costs of $184,300 in manufacturing the equipment and $3,800 in sales commissions in closing the lease. Splish has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 10%. Blossom Airlines has an incremental borrowing rate of 10%. Click here to view factor tables.