Use the information from P18-9 to complete the following requirements.

Required

a. Compute the implicit rate.

b. Classify this lease for Lori-Ann Fashions.

c. Prepare the journal entry necessary for Lori-Ann Fashions to record this transaction on the lease commencement date.

d. Prepare the lease amortization schedule and prepare the journal entries through January 1, 2023, for Lori-Ann Fashions.

Data from Exercises 9

Lori-Ann Fashions, Inc. entered into a 5-year lease with Krishnan Rentals to use equipment. The economic life of the equipment is 30 years. The equipment had a fair value of $8,500,000. Lori-Ann has an option to purchase the equipment at the end of the lease term for $5,500,000, which is likely to be exercised. The annual lease payments are $983,199 and are due on January 1 of each year. The first payment is due on the lease commencement date of January 1, 2022. The implicit rate in the lease is known by Lori-Ann. There is no guaranteed residual value specified. The lessor did not offer any incentives to sign the lease. Lori-Ann did not incur any initial indirect costs. The company’s fiscal year ends on December 31. The carrying value of the equipment is $6,500,000.