Oakridge Leasing Corporation signs an agreement on January 1, 2020, to lease equipment to LeBlanc Limited. Oakridge and LeBlanc follow ASPE. The following information relates to the agreement.

1. The term of the non-cancellable lease is five years, with no renewal option. The equipment has an estimated economic life of six years. 

2. The asset’s fair value at January 1, 2020, is $80,000. 

3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $7,000, which is not guaranteed. 

4. LeBlanc Limited assumes direct responsibility for all executory costs, which include the following annual amounts: $900 to Rocky Mountain Insurance Ltd. for insurance and $1,600 to James Township for property taxes. 

5. The agreement requires equal annual rental payments of $18,143 to Oakridge, the lessor, beginning on January 1, 2020. 6. The lessee’s incremental borrowing rate is 11%. The lessor’s implicit rate is 10% and is known to the lessee. 

7. LeBlanc Limited uses the straight-line depreciation method for all equipment and rounds amounts to the nearest dollar. 

8. LeBlanc uses reversing entries when appropriate. 

Instructions 

Answer the following, rounding all numbers to the nearest dollar. 

a. Calculate the PV of the future minimum lease payments using any of the following methods: (1) factor tables, (2) a financial calculator, or (3) Excel functions. 

b. Prepare an amortization schedule for LeBlanc Limited for the lease term. Use Excel and round all amounts to the nearest dollar. (Hint: You may find the ROUND formula helpful for rounding in Excel.) 

c. Prepare all of LeBlanc’s journal entries for 2020 and 2021 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume that the lessee’s annual accounting period ends on December 31 and that LeBlanc uses reversing entries. 

d. Show the calculations that Oakridge, the lessor, used to arrive at the lease payment amount of $18,143. Show calculations using any of the following methods: 

(1) Factor tables, 

(2) A financial calculator, 

(3) Excel functions. 

e. Provide the required note disclosure for LeBlanc Limited concerning the lease for the fiscal year ended December 31, 2021.