amity leases
On January 1, 2019, Amity Company leases a crane to Baltimore Company. The lease contains the following terms and provisions:
• The lease is noncancelable and has a term of 10 years.
• The lease does not contain a renewal or bargain purchase option.
• The annual rentals are $4,050, payable at the beginning of each year.
• Baltimore agrees to pay all executory costs directly to a third party.
• The cost of the equipment to the lessor is $25,173.36. The fair value of the equipment is $26,700.
• Amity incurs initial direct costs of $1,370.46.
• The interest rate implicit in the lease is 12%.
• Amity expects to collect all lease payments from Baltimore.
• Amity estimates that the fair value at the end of the lease term will be $2,840 and that the economic life of the crane is 12 years. This value is not guaranteed by Baltimore.
Prepare the journal entries for Amity for 2019.
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