The following facts pertain to a non-cancelable lease agreement between McCoy Manufacturing, Inc., the lessor, and Briscoe Company, the lessee. January 1, 2020 $162,730 Commencement date Annual lease payment due at beginning of each year, starting January 1, 2020 Residual value of equipment at end of lease term, guaranteed by the lessee Expected residual value at end of lease term Lease term Economic life of leased equipment Fair value of equipment at January 1, 2020 McCoy's cost to produce equipment Lessor's implicit rate Lessee's incremental borrowing rate $100,000 60,000 6 years 9 years $800,000 $675,000 12% 12% Briscoe depreciates all its equipment on a straight-line basis. Required: (1) Is this lease a finance lease for Briscoe, the lessee? In your answer, apply each test, other than the alternative use test (which is not satisfied), and show calculations for each test involving numerical computations. Prepare the entry(ies) Briscoe would make on January 1, 2020, when the lease starts. Show supporting computations. Assuming the lease is a finance lease, prepare Briscoe's amortization schedule through the third lease payment to be made on January 1, 2022. Prepare the necessary journal entry(ies) for Briscoe on December 31, 2020. Indicate what would be reported on Briscoe's balance sheet as of December 31, 2020, with respect to the lease. Assuming that the lease is to be treated as a sales-type lease, prepare the necessary journal entries for McCoy for January 1, 2020. The following facts pertain to a non-cancelable lease agreement between McCoy Manufacturing, Inc., the lessor, and Briscoe Company, the lessee. January 1, 2020 $162,730 Commencement date Annual lease payment due at beginning of each year, starting January 1, 2020 Residual value of equipment at end of lease term, guaranteed by the lessee Expected residual value at end of lease term Lease term Economic life of leased equipment Fair value of equipment at January 1, 2020 McCoy's cost to produce equipment Lessor's implicit rate Lessee's incremental borrowing rate $100,000 60,000 6 years 9 years $800,000 $675,000 12% 12% Briscoe depreciates all its equipment on a straight-line basis. Required: (1) Is this lease a finance lease for Briscoe, the lessee? In your answer, apply each test, other than the alternative use test (which is not satisfied), and show calculations for each test involving numerical computations. Prepare the entry(ies) Briscoe would make on January 1, 2020, when the lease starts. Show supporting computations. Assuming the lease is a finance lease, prepare Briscoe's amortization schedule through the third lease payment to be made on January 1, 2022. Prepare the necessary journal entry(ies) for Briscoe on December 31, 2020. Indicate what would be reported on Briscoe's balance sheet as of December 31, 2020, with respect to the lease. Assuming that the lease is to be treated as a sales-type lease, prepare the necessary journal entries for McCoy for January 1, 2020
