Refer to the data and other information provided in E20-4, but now assume that Fine's fiscal year end is May 31. Prepare the journal entries on Fine Corp.'s books to reflect the lease signing and to record payments and expenses related to this lease for the calendar years 2014 and 2015. Fine does not prepare reversing entries.
In Exercise 4
1. The agreement requires equal rental payments of $73,580 beginning on January 1, 2014.
2. The loom's fair value on January 1, 2014, is $450,000.
3. The loom has an estimated economic life of 12 years, with an unguaranteed residual value of $12,000. Fine Corp. depreciates similar equipment using the straight-line method.
4. The lease is non-renewable. At the termination of the lease, the loom reverts to the lessor.
5. Fine's incremental borrowing rate is 12% per year. The lessor's implicit rate is not known by Fine Corp.
6. The yearly rental payment includes $2,470.29 of executory costs related to insurance on the loom.