1. Stark Industries both sells and leases equipment it manufactures to customers. The most popular piece of equipment is the arc reactor; costs to manufacture each unit total $650,000. The fair value of each arc reactor is $950,000.
2. Standard lease terms provide for seven equal annual payments. Each annual payment includes $3,750 in executory costs. The first payment is due when the lease is signed and subsequent payments are due January 1 each year thereafter. Stark uses an implicit rate of interest of 7% per year in all its lease computations. The estimated economic life of the arc reactor is eight years.
3. Wayne Enterprises agrees to lease one of the arc reactors beginning January 1, 2013.
4. Wayne Enterprisess incremental borrowing rate is determined to be 10%. Because the equipment is very specialized, Wayne is required to guarantee a salvage value of $50,000 upon expiration of the seven-year lease.
5. There are no important uncertainties; and collectibility is reasonably predictable and assured.
6. Both the lessee and the lessor report financial results on a calendaryear basis. Wayne Enterprises is not aware of lessor Stark Industries implicit interest rate.

1. Compute the annual lessee payment Wayne Enterprises will make to the Stark Industries.
2. Prepare Stark Industries amortization table.
3. Prepare all journal entries Stark Industries should record for the year ended 12/31/13.
4. Prepare Wayne Enterprises amortization table.
5. Prepare all journal entries Wayne Enterprises should record for the year ended 12/31/13.