Question

problem lease the equipewear. The te porta an the beginning on to have a recolectabilang Problem II (15 points): Adam, Bevc, wurchased p o sting $45,226 wamy 1, immediately leased the equipment toob Commy for a four-year period with real 58.000 to be 6%. The paid at the beginning of each year. The less's implicit interest rate in connection with w pment is expected to have a resichual value of at the end of the www.cancelable lease, and a useful life of 12 years. The collectability of the lease payments is probable for the leader Note: Present value of an ordinary annuity of 1 for 4xrids at 6% is 3.46511. of an annully one periods at 6% is 3.67301. Present value of 1 for 4 periods at 6% is 0.79209). Instructions Classify the lease from the standpoint of the lessee and lesser, giving reasons (5 points) na ang Trods at 6% is 3.46511, of an wity due of 1 for 4 clase, unguaranteed b. Prepare the journal entries of the lessee through December 31, 2020 (10 points). c. Prepare the journal entries of the lessor through December 31, 2020 (5 bonus points).

Answer 1

	Lease qualifies to be finance lease if the below conditions are satisfied:
1	The lease transfers ownership of the asset to the lessee by the end of the lease term.												No transfer in this case
2	The lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date of the option exercisability. It is reasonably certain, at the inception of the lease, that the option will be exercised.												No guarentee of purchasing asset at the end
3	The lease term is for the major part of the economic life of the asset even if the title is not transferred.												Lease term does not cover major part
4	At the inception of the lease the present value of the lease payments amounts to at least substantially all of the fair value of the leased asset.												Not in this case
5	The leased assets are of such a specialized nature that only the lessee can use them without major modifications.												Not certain in this case
	As the condition are not satisfied it is an operating Lease
	Lease Amount'	Yr	PV factor @6%	PV of lease payments
	8,000	1	1.00	8,000
	8,000	2	0.94	7,547
	8,000	3	0.89	7,120
	8,000	4	0.84	6,717
	PV of total lease payments			29,384
	Journal Entry
JAN 1 ,19	Leased Asset A/c Dr	29384.1
	To Lease Liability A/c	29384.1
JAN 1 ,19	Lease Liability A/c Dr	8000
	To Bank A/c	8000
Dec 31 ,19	Depreciation A/c Dr	8000
	To Leased Asset A/c	8000
JAN 1 ,20	Lease Liability A/c Dr	7547
	Interest Exp A/c Dr	453
	To Bank A/c	8000
Dec 31 ,20	Depreciation A/c Dr	7547
	To Leased Asset A/c	7547