The following facts pertain to a noncancelable lease agreement between Waverly Leasing Company and Lancaster Electronics, a lessee, for a computer system. The lease begins on October 1, 20X0. The company's fiscal year is the calendar year and ends on December 31. The asset goes back to the lessor at the end of the lease term. WAVERLY LEASING COMPANY AND LANCASTER ELECTRONICS INFORMATION RELATING TO LEASING COMPUTER SYSTEM AT OCTOBER 1, 20X0 Lease Start Date 10/1/X0 Term of Lease in Years 6 Economic Life of Leased Asset in Years 6 Fair Value of Asset at Start of Lease on 10/1/XO $ 313,043 Book Value of Asset at Start of Lease on Lessor's Books $ 280,000 Amortization of Prior Service Cost $ 90,000 Estimated Residual Value at End of Lease Lessor's Implicit Rate in Lease 8% Lessee's Incremental Borrowing Rate 8% Annual Lease Payment Due at Beginning of Each Year $ 62,700 REQUIRED: (1) Calculate the present value of the lease payments. Round your answer to the nearest whole dollar. (2) Determine the type of lease this is to the lessee, Lancaster Electronics. (3) Prepare an amortization schedule for this lease for the lessee for the life of the lease. Round all calculations to the nearest whole dollar. (4) Prepare the general journal entries for the lessee for the first year of the lease. Provide the appropriate date for each entry and a brief explanation for each entry made. (5) Prepare the general journal entries for the lessee for the second year of the lease. Provide the appropriate date for each entry and a brief explanation for each entry made. LANCASTER ELECTRONICS CALCULATION OF PRESENT VALUE OF LEASE PAYMENTS AT OCTOBER 1, 20X0 CPT PV i n PMT FV LANCASTER ELECTRONICS DETERMINATION OF LEASE TYPE-COMPUTER LEASE AT DECEMBER 31, 20X0 Answer (Y/N) Criterion 1. Does the lease transfer ownership of the underlying asset to the lessee by the end of the lease term? 2. Does the lease grant the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise? 3. Is the lease term for a major part of the remaining economic life of the underlying asset (75% or more)? 4. Does the present value of the sum of the lease payments and any lessee residual value guarantee not reflected in the lease payments equal or exceed substantially all of the underlying asset's fair value (90% or more)? 5. Is the underlying asset of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term? CONCLUSION: LANCASTER ELECTRONICS LEASE AMORTIZATION TABLE-COMPUTER SYSTEM Beginning Total Payment on Lease Payment Interest Lease Liability Amount Amount Liability Ending Lease Liability Date
