Question
Uptown Inc. entered into an arrangement on January 1, 2017 to lease a machine for four years with lease payments of $85,000 each year with
Uptown Inc. entered into an arrangement on January 1, 2017 to lease a machine for four years with lease payments of $85,000 each year with the first payment due immediately and January 1 of each year thereafter. There are no options to extend, terminate, or renew the lease. The lessor requires a return on its leases of this type of 8%, which is the same as Uptown Inc.s marginal borrowing rate.
a) Assuming that this lease meets the criteria for finance lease treatment and the lessor purchased the machine for $281,530.78 and regularly both sells and leases this type of equipment. Which of the following journal entries should the lessor record on January 1, 2017 (not including receipt of the first lease payment)?
b) Assuming that the lease meets the criteria for finance lease treatment, which of the following journal entries should the lessee (Uptown Inc.) record on December 31, 2017?
c) Assuming, instead, that the lease qualifies for operating lease treatment, Uptown should record how much amortization expense in 2017?
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