Stillwater Sports Company leased manufacturing equipment from Premier Leasing on January 1 of the current year. Premier purchased the equipment for $326,189.

Lease term 4 years

Annual Payments $90,000 on January 1 beginning with the current year.

Life of Asset 4 years

Fair value of Asset $326,189

Implicit interest rate 7%

Incremental rate 7%

There is no expected residual value or bargain purchase option. Assume that depreciation expense is computed at December 31 of each year. From Premier Leasings perspective, assume that collection of rental payments is certain, and there is no uncertainty with regard to future costs.

REQUIRED:

For Stillwater Sports:

a. What type of lease is this? Support your answer?

b. What is the present value of the minimum lease payments? Support your answer.

c. Prepare an amortization schedule for the lease for all four years.

d. What journal entries would Stillwater Sports record during the first year of the lease? Assume that Stillwater has a calendar year end and makes appropriate adjusting entries at year-end.

For Premier Leasing: a. What type of lease is this? Support your answer?

b. What is the present value of the minimum lease payments? Support your answer.

c. Prepare an amortization schedule for the lease for all four years.

d. What journal entries would Premier Leasing record during the first year of the lease? Assume that Premier has a calendar year end and makes appropriate adjusting entries at year-end.