Try-Star Leasing Company enters into a contract with LLX Corporation for equipment under lease for a three-year period. The equipment will have no residual value when the lease term ends and has an economic life of 3 years. Try-Star expects to collect all payments from LLX Corporation. The carrying value of the equipment was $48,000 at the inception of the lease, but the fair value was $56,000. The three equal annual payments (amount to be determined) are to be paid each January 1, starting January 1, 2020, (at which time the equipment was delivered). In addition to the fixed lease payment, LLX Corporation has agreed to pay Try-Star $400 annually for taxes and insurance throughout the lease term, at the time fixed lease payments are due. Try-Star expects an 8% return (known to LLX Corporation). LLX incurred $1,200 in legal fees for the execution of the lease on January 1, 2020, to be paid in 30 days. The accounting year of both companies ends December 31. 

a. Determine the classification of the lease to Try-Star Leasing Company, 

b. Provide all journal entries relating to the lease for Try-Star Leasing Company for 2020-2022. Assume that Try-Star classifies the equipment as inventory. 

Answer rating: 100% (QA)

Solution Lessor Accounting TryStar Ans a Calculation of annual lease rental Amount Fair value of ass... View the full answer