The Balance Sheet of the Illini as of 12/31/20X0:

Assets Current Assets: Cash 1,500,000 Accounts receivable, net 18,000 Inventory 50,000 Total current assets 1,568,000 Equipment 90,000 Goodwill 20,000 Total assets $1,678,000

Liabilities and shareholders' equity Shareholders' equity: Common stock, 20,000 shares outstanding, $1 par 20,000 Additional paid-in capital 280,000 Retained earnings 1,378,000 Total shareholders' equity 1,678,000 Total liabilities and shareholders' equity 1,678,000

Note that all additional paid-in capital (APIC) sub accounts (e.g., APIC-options and APIC-treasury stock), if any, are tracked in the Additional paid-in capital account on the Balance Sheet.

2.2 Part 2

Illini leases another piece of equipment from Cubs Corporation under a four-year lease agreement on 1/1/20x1. The lease specifies annual payments on each 1/1 and the first payment of $10,000 is made on 1/1/20x1. The lease also specifies a 3% annual increase in the lease payments. The equipment has a fair value of $100,000 on 1/1/20x1. The expected useful life of the equipment is 10 years with no residual value. The equipment will be returned to Cubs at the end of the lease term. The implicit rate is 10%.

Date	Account Name		Debit	Credit
1/1/20x1	ROU assets		[A]
		Lease obligation		[B]
1/1/20x1	Lease obligation		[C]
		Cash		[D]
12/31/20x1	Rental expense		[E]
		Accrued interest		[F]
		ROU assets		[G]
1/1/20x2	Lease obligation		[H]
	Accrued interest		[I]
		Cash		[J]
12/31/20x2	Rental expense		[K]
		Accrued interest		[L]
		ROU assets		[M]

2.2 Part 3

Illini leases equipment to Cardinal Corporation under a four-year lease agreement on 1/1/20x1. The equipment has a net carrying value of $90,000 on Illinis book on 1/1/20x1. The fair value of the equipment is $132,357. Illinis initial costs incurred for the lease arrangement is $10,000. The lease specifies annual payments of $36,000 on each 1/1 and beginning 1/1/20x1. The expected useful life of the equipment is five years. The expected residual value of the equipment is $10,000, which is guaranteed by Cardinal. The implicit rate is 10%.

Date	Account Name		Debit	Credit
1/1/20x1	Investment in lease		[A]
	COGS		[B]
	Selling expense-Initial issuance cost		[C]
		Equipment		[D]
		Cash		[E]
		Sales revenue		[F]
1/1/20x1	Cash		[G]
		Investment in lease		[H]
12/31/20x1	Interest receivable		[I]
		Interest revenue		[J]
1/1/20x2	Cash		[K]
		Interest receivable		[L]
		Investment in lease		[M]
12/31/20x2	Interest receivable		[N]
		Interest revenue		[O]