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The following facts pertain to a non-cancelable lease agreement between Ford and NextCar, a lessee.               ...

The following facts pertain to a non-cancelable lease agreement between Ford and NextCar, a lessee.

               Lease Origination Date                                                                                                            May 1, 2017

               Annual lease payments due at the beginning of each lease year                                 $20.471.94

               Bargain purchase option price at the end of lease term                                                 $4,000

               Lease term                                                                                                                                  5 years

               Economic life of leased equipment                                                                                       10 years

               Lessor’s cost                                                                                                                               $65,000

               Fair value of asset on May 1, 2017                                                                                       $91,000

               Fair value of asset on May 1, 2022                                                                                       $15,000

               Lessor implicit rate                                                                                                                   8%

               Lessee’s incremental borrowing rate                                                                                  8%

The collectability of the lease payments is probable.

  1. What type of lease is this and why?
  2. Prepare a lease amortization schedule for NextCar for the 5-year term.
  3. Prepare the journal entries on the lessee’s book to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2017 and 2018. NextCar has an April 30th year end.
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