The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs, which amount to $5,500 per year and are to be paid each October 1, beginning October 1, 2014. (This $5,500 is not included in the rental payment of $62,700.) The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment. The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a capital lease by the lessee and as a direct-financing lease by the lessor. Date 10/01/14 10/01/14 10/01/15 10/01/16 10/01/17 10/01/18 10/01/19 Annual Lease Payment/ Receipt Interest (10%) on Unpaid Liability/Receivable $23,768 19,875 15,593 10,882 5,699* $75,817 Reduction of Lease Liability/Receivable Balance of Lease Liability/Receivable $300,383 237,683 198,751 155,926 108,819 57,001 0 *Rounding error is $1. Instructions $ 62,700 62,700 62,700 62,700 62,700 62,700 $ 62,700 38,932 42,825 47,107 51,818 57,001 $376,200 $300,383

(Balance Sheet and Income Statement DisclosureLessee) The following facts pertain to a noncancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a computer system. Inception date Lease term Economic life of leased equipment Fair value of asset at October 1, 2014 Residual value at end of lease term Lessors implicit rate Lessees incremental borrowing rate Annual lease payment due at the beginning of October 1, 2014 6 years 6 years $300,383 0 10% 10% each year, beginning with October 1, 2014 $62,700

(b) Assuming the lessees accounting period ends on December 31, answer the following questions with respect to this lease agreement. (1) What items and amounts will appear on the lessees income statement for the year ending December 31, 2014? (2) What items and amounts will appear on the lessees balance sheet at December 31, 2014? (3) What items and amounts will appear on the lessees income statement for the year ending December 31, 2015? (4) What items and amounts will appear on the lessees balance sheet at December 31, 2015?