On 31 December 20X1, Lessor Limited leased a reaming machine to a client for six years at

Question:

On 31 December 20X1, Lessor Limited leased a reaming machine to a client for six years at $\$ 48,000$ per year. Lease payments are to be made at the beginning of each lease year. Lessor purchased the machine for $\$ 239,650$. Lessor negotiated the lease so as to receive a $8 \%$ return (pre-tax) on the investment. Lessor anticipates no significant salvage value or removal costs at the end of the lease term.

Required:

1. Prepare an amortization schedule for the lease receivable, assuming that the lease is a finance lease.

2. Prepare journal entries to record the lease transactions for $20 \times 1$ through $20 \times 2$, assuming that the lease receivable is recorded by Lessor on the net method.

3. Repeat requirement (2) but assuming instead that the lease receivable is recorded on the gross method.

4. How would the amounts relating to the lease be shown on Lessor's balance sheet at 31 December 20X3? Assume that the lessor has an unclassified balance sheet.

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