Terms of a lease agreement and related facts were:

1. The lease asset had a retail cash selling price of $135,000. Its useful life was six years with no residual value (straight-line depreciation).
2. Annual lease payments at the beginning of each year were $27,693, beginning January 1.
3. Lessor's implicit rate when calculating annual rental payments was 9%.
4. Costs of $3,262 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 $135,000 to acquire the asset (operating lease).

2.The lease term is six years and the lessor paid $135,000 to acquire the asset. Also assume that adjusting the lease receivable (net investment) by initial direct costs reduces the effective rate of interest to 8%.

3.The lease term is six years and the lessor paid $97,000 to acquire the asset.