Universal Leasing leases electronic equipment to a variety of businesses. The company's primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term direct financing leases. Universal earns interest under these arrangements at a 10% annual rate. The company leased an electronic typesetting machine it purchased for $36,900 to a local publisher, Desktop Inc., on December 31, 2015. The lease contract specified annual payments of $8,353 beginning January 1, 2016, the inception of the lease, and each December 31 through 2017 (three-year lease term) The publisher had the option to purchase the machine on December 30, 2018, the end of the lease term, for $18,700 when it was expected to have a residual value of $22,700. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required 1. Show how Universal calculated the $8,353 annual lease payments for this direct financing lease. Amount to be recovered Amount to be recovered through periodic lease payments 8,353 Lease payments at the beginning each of three years 2. Prepare an amortization schedule that describes the pattern of interest revenue for Universal Leasing over the lease term. Lease Amortization Schedule Date Payments Effective Interest Decrease in Balance Outstanding Balance 01/01/2016 12/31/2016 12/31/2017 12/31/2018 Totals