Terms of a lease agreement and related facts were as follows:

a. The lease asset had a retail cash selling price of $138,000. Its useful life was six years with no residual value (straight-line depreciation).

b. Annual lease payments at the beginning of each year were $28,805, beginning January 1.

c. Lessors implicit rate when calculating annual rental payments was 10%.

d, Costs of $2,845 for legal fees for the lease execution were the responsibility of the lessor.

Required:

Prepare the appropriate entries for the lessor to record the lease, the initial payment at its beginning, and at the December 31 fiscal year-end under each of the following three independent assumptions:

1. The lease term is three years and the lessor paid $138,000 to acquire the asset (operating lease).

2. The lease term is six years and the lessor paid $138,000 to acquire the asset (sales-type lease). Also assume that adjusting the lease receivable (net investment) by initial direct costs reduces the effective rate of interest to 9%.

3. The lease term is six years and the lessor paid $104,000 to acquire the asset (sales-type lease).