On December 31, 2018, Lessor purchased equipment for $200,000. On January 1, 2019, Lessor entered into a 3-year lease agreement to lease the equipment to Lessee. Both Lessee and Lessor appropriately classify this as an operating lease.  Lease provisions and other information are as follows:

 

• Annual rental payments are due on December 31 each year, beginning in 2019, as follows:

      $10,000 in 2019, $16,000 in 2020, and $19,000 in 2021.

• The lease contract specifies an interest rate of 6%. 
• Lessee has a fiscal year-end of 12/31.

 

Required:

1. Calculate the lessee’s initial lease liability and prepare a lease liability amortization schedule for the three-year lease term.
2. Prepare the lessee’s journal entries for 2019
3. Calculate the carrying amounts to be reported on lessee’s 12/31/19 balance sheet for (1) lease liability and (2) right-of-use asset

Answer rating: 100% (QA)

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