On January 1, 2020, Winthrop Inc. entered into a lease agreement to lease equipment:

• 5-year lease term
• Annual lease payments are $10,000
• First payment is on January 1, 2020 and the other payments are on 31 December each year
• At the end of the lease the leased asset will revert to the lessor
• The asset’s economic life is estimated at 10 years
• Winthrop could have obtained equivalent financing from its bank at a rate of 5%
• Winthrop’s fiscal year end is December 31
• The equipment has a fair value of $70,000

Required:

1. Calculate the present value of the lease payments.
2. Prepare the amortization table.
3. Classify the lease agreement.
4. Prepare the journal entry(ies) for the lessee for the 2020 fiscal year related to the lease arrangement.

Answer rating: 100% (QA)

A Number of periods 5 Incremental borrowing rate 5 Rental payments beginning of each year 10000 Present value of the lease payments Discounted at 5 Ye... View the full answer