Question 10 points On January 1, 2020, Adliya Company sign a year la contract to lease an equipment from Gulf Company. The lease agreement is non-renewable and non cancelal According to the agreement, the lessice required to make annual rental payment of $240,000 beginning from January 1, 2020. The lease contains the follow provi 1. The estimated economic life of the equipment is 5 years 2. At the inorption of the lease the finir value of the equipment is $840,000 3. Each annual retital payment includes $14,487.72 of executory costs relating to property taxes 4 The longer incremental borrowing rate i 105 The lotor's implicit rafo is 8% and is known to the lensee At the end of the house term, the equipment will revert to the donor, and at that time the equipment is expected to have unguaranteed residual value of $48.000 6 Roth, Adliya Company and Gulf Company, use the straight line method for depreciation. Additional information: The present value of an Ordinary Annuity of St and the prosent value of an Annuty Diue of 1 for 5 perioda ut 896.9% and 10% are as follows: The present value of an Annuity Due of $1 Period 8% 99 1095 100000 1 00000 1.00000 2 1.92503 1 91743 1.90909 3 2.78326 2.75911 2.73554 4 3.57710 3.53129 3.48685 5 431221 423972 416987 1 Instructions: The dome of the years 2. At the cup of the name, the value of the quant 550.000 Each mal real payment includes $14.457 72 ofecutory cost man to property taxes The Incremental borrowing rate is 10%. The lessor petrate is 19 and is known to the 5. At the end of the name form, the guest will revert to the mor, and at that time the equipment is expected to have put real value of SA 000 6 Both Adly Company and Cult Company, we the the method for depreciation Additional information The present value of an ordinary Annuity of and the present value of an Annmty Due of 1 for 5 periods at 8%, 9% and 10% are as follows The present value of an Annuity Due of $1 Period 8% 105 1 100000 1 00000 1.00000 1.92593 151743 1.90909 3 278326 2.75911 2.73554 4 357710 3.53129 1.48685 5 431221 423972 416987 Instructions: A What is the type of this lease to Adliya Company? Explain why 8. Prepare an amortization schedule through the year 2021 and 2022 that would be suitable for the densee C Prepare the necessary journal entries in the books of Adliya Company during 2020 and January 1, 2021 to reflect the base agreement, the lease payments and expenses related to this lease Assume that the lessee's annual accounting period ends on December 31 DOLL
