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Tamarisk Company, a risky start-up, is evaluating a lease arrangement being offered by TSP Company for use of a standard computer system. The lease is

Tamarisk Company, a risky start-up, is evaluating a lease arrangement being offered by TSP Company for use of a standard computer system. The lease is non-cancelable, and in no case does Tamarisk receive title to the computers during or at the end of the lease term. The lease starts on January 1, 2020, with the first rental payment due on January 1, 2020. Additional information related to the lease and the underlying leased asset is as follows.

Yearly rental $3,301.90
Lease term 3 years
Estimated economic life 5 years
Purchase option $3,240 at end of 3 years, which approximates fair value
Renewal option 1 year at $1,620; no penalty for nonrenewal; standard renewal clause
Fair value at commencement $10,800
Cost of asset to lessor $10,800
Residual value:
Guaranteed 0
Unguaranteed $3,240
Lessors implicit rate (known by the lessee) 12%
Estimated fair value at end of lease $3,240

(A) Analyze the lease capitalization tests for this lease for Tamarisk. Assuming Tamarisk has the option to purchase the system at the end of the lease for $100. Prepare the journal entries for Tamarisk for 2020. 8 entries:

2 entries to record lease

2 entries to record first lease payment

2 entries to record interest

2 entries to record amortization expense

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