1. The lease is for a standard piece of equipment for a term of 4 years....

Transcribed Image Text:

1. The lease is for a standard piece of equipment for a term of 4 years. The lease is noncancelable and requires payments of $40,000 at the end of each year, beginning January 1, 2020. 2. The lessor's cost, and fair value, of the equipment at the inception of the lease is $128,160.63. The equipment has an estimated useful life of 5 years with $10,000 residual value. 3. The lessee is not providing a guarantee of the residual value at the end of the lease. 4. At the end of the lease the asset will be returned to the lessor unless the lessee chooses to exercise a right to purchase the leased asset for $2,000. 5. The lessee determines that the interest rate implicit in the lease is 10%. Required 1. Determine the type of lease for the lessee. Finance Lease - There is a purchase option that is reasonably expected to be exercised. 2. Provide the journal entry at lease commencement. 1/1/2020 Right of Use Asset $128,161 Lease Liability $128,161 1. The lease is for a standard piece of equipment for a term of 4 years. The lease is noncancelable and requires payments of $40,000 at the end of each year, beginning January 1, 2020. 2. The lessor's cost, and fair value, of the equipment at the inception of the lease is $128,160.63. The equipment has an estimated useful life of 5 years with $10,000 residual value. 3. The lessee is not providing a guarantee of the residual value at the end of the lease. 4. At the end of the lease the asset will be returned to the lessor unless the lessee chooses to exercise a right to purchase the leased asset for $2,000. 5. The lessee determines that the interest rate implicit in the lease is 10%. Required 1. Determine the type of lease for the lessee. Finance Lease - There is a purchase option that is reasonably expected to be exercised. 2. Provide the journal entry at lease commencement. 1/1/2020 Right of Use Asset $128,161 Lease Liability $128,161