The following facts pertain to a noncancelable lease agreement between REET Leasing Company and Redbird Company, a lessee:

• Inception date January 1, 2020
• Annual lease pmt. due at the beg. of each

year, beginning with January 1, 2020 $113,864

• Residual value of the equipment at the end of

lease term, guaranteed by the lessee $50,000

Expected Residual value equipment at end of lease term $45,000

• Lease term 6 years
• Economic life of leased equipment 6 years
• Fair value of equipment at January 1, 2020 $600,000
• Lessors implicit rate 8%
• Lessees incremental borrowing rate 8%

The equipment will revert to the lessor at the end of the lease term. The lessee uses straight-line amortization for all leased equipment.

Required:

1. Prepare a lease amortization table for Redbird for the life of the lease (note the probable residual value payment should be the last line of the table before the total figures). See illustration 21.22 in the text for an example to follow.

2. Prepare the appropriate journal entries for Redbird on 1/1/20 and 12/31/20

3. Show what would be reported on the 12-31-20 balance sheet for this lease for non-current assets, current and long-term liabilities. Show what would be reported by Redbird in their 2020 income statement for interest expense and amortization expense for this lease.