The following table tabulates the amortization schedule for the Lessee Sterling Corp on a 3-year Finance lease. The guaranteed residual value at the end of YR3 is $3,000, and Sterling Corp.’s estimated residual value of the leased asset at the end of the lease term is zero.

Sterling Corp. Lease Amortization Schedule (Annuity Due Basis)

Date	Annual Lease Payment	Interest Expense	(Reduction)/Increase In Lease Liability	Lease Liability
1/1/Year 1				$20,000
1/1/Year 1	6,487		(6,487)	13,513
12/31/Year 1		1,351	1,351	14,864
1/1/Year 2	6,487		(6,487)	8,377
12/31/Year 2		838	838	9,215
1/1/Year 3	6,487		(6,487)	2,728
12/31/Year 3		272	272	3,000

REQUIRED: 

Fill in the relevant amounts on the Statement of Cash Flows for the Lessee for all 3 years.

1. Lessee Statement of Cash Flows (use the Direct Method for CFO section). For this part you do not need to put any numbers in parentheses because all of the numbers are cash outflows.

	Year 1	Year 2	Year 3
CFO (Direct Method)
CFF

2. 
   
3. Lessee CFO section using the Indirect Method – start with Net Income. For this part you need to put Net Income in parenthesis because they are expense numbers, and you need to put numbers that you are subtracting from NI in parentheses to distinguish them from numbers you are adding to NI.

Round your numbers to the nearest dollar.

	Year 1	Year 2	Year 3
Net Income
Adjustments:
Amortization expense
Changes in Interest Payable

Lessee’s journal entries for the return of the asset if the actual value of the returned asset at the end is $2,000 includes a Credit to Gain of $ ___________ .