1. The following facts pertain to a non-cancelable lease agreement between Microsoft Company (Lessor) and Pepsi Company (Lessee).

Commencement date	January 1, 2020
Annual lease payment due at the beginning of each year, beginning with January 1, 2020.	$20,471.94
Lease term	5 years
Economic life of leased equipment	10 years
Lessors cost	$65,000
Fair value of asset at January 1, 2020	$91,000
Lessees incremental borrowing rate	6%
Lessors implicit rate known by Lessee	8%
The collectability of the lease payments by Microsoft Company is probable.	Yes
Lessees method of depreciation	Straight line basis for all assets

In addition, at the end of the lease term, Pepsi Company has the option to purchase the equipment for $4,000, while the expected residual value at the end of the lease is $20,000. Pepsi is reasonably certain to exercise this option.

1. Does the lease qualify as a financing lease for Pepsi Company? If yes, please discuss the classification test(s) that were met. (3 pts)

1. Compute the lease liability for Pepsi Company. (5 pts)

1. Prepare a lease amortization schedule for Pepsi Company for the 5-year lease term (5 pts)

1. Prepare the journal entries on Pepsi Companys book to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the year 2020. Pepsis annual accounting period ends on December 31. (8 pts)

1. Prepare a journal entry on Pepsi Companys books to record the interest expense in 2023 (4 pts)