Yard Art guaranteed a residual value of $6,000. Yard Arts incremental borrowing rate is 9% and is unaware of Branchs implicit rate. A $1,000 per year maintenance agreement was arranged for the truck with an outside service firm. As an expedient, Branch Motors agreed to pay this fee. It is, however, reflected in the $11,000 lease payments. (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. How should this lease be classified by Yard Art Landscaping (the lessee)? 2. Calculate the amount Yard Art Landscaping would record as a right-of-use asset and a lease liability. 3. How should this lease be classified by Branch Motors (the lessor)? 4. Show how Branch Motors calculated the $11,000 annual lease payments. 5. Calculate the amount Branch Motors would record as sales revenue. 6. Prepare the appropriate entries for both Yard Art and Branch Motors on December 31, 2018. 7. Prepare an amortization schedule that describes the pattern of interest expense over the lease term for Yard Art. 8. Prepare an amortization schedule that describes the pattern of interest revenue over the lease term for Branch Motors. 9. Prepare the appropriate entries for both Yard Art and Branch Motors on December 31, 2019. 10. Prepare the appropriate entries for both Yard Art and Branch Motors on December 31, 2021 (the final lease payment). 11. Prepare the appropriate entries for both Yard Art and Branch Motors on December 31, 2022 (the end of the lease term), assuming the truck is returned to the lessor and the actual residual value of the truck was $4,000 on that date.