The following facts pertain to a non$-$cancelable lease agreement between Faldo Leasing Company and Vance Company, a lessee. Commencement date January $1,2020$ Annual lease payment due at the beginning of each year, beginning with January $1,2020$ $$113,864$ Residual value of equipment at end of lease term, guaranteed by the lessee $$50,000$ Expected residual value of equipment at end of lease term $$45,000$ Lease term $6$ years Economic life of leased equipment $6$ years Fair value of asset at January $1,2020$ $$600,000$ Lessor$$s implicit rate $8\%$ Lessee$$s incremental borrowing rate $8\%$ The asset will revert to the lessor at the end of the lease term. The lessee uses the straight$-$line amortization for all leased equipment.

Instructions

a$.$ Prepare an amortization schedule that would be suitable for the lessee for the lease term.

b$.$ Prepare all of the journal entries for the lessee for $2020$ and $2021$ to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee$$s annual accounting period ends on December $31.$

c$.$ Suppose Vance received a lease incentive of $$5,000$ from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right$-$of$-$use asset be aff ected? What if Vance prepaid rent of $$5,000$ to Faldo?