Use the same information from Exercise 17 - 63 but assume instead that the lease contract contains a purchase option stating that Land Company can purchase the equipment for \(\$ 4,000\) on January 1,2025 , at which time its estimated residual value is \(\$ 6,500\). It is reasonably certain that Land Company will exercise the purchase option at the end of the lease term.

Required

a. Compute the annual payment for the lessor.

b. Prepare an amortization schedule of the lease receivable for the lessor.

c. Prepare journal entries for 2020 and 2021 for the lessor.

Exercise 17 - 63

Flint Company leased equipment to Land Company for a five-year period. Flint paid \(\$ 46,965\) for the equipment, its current carrying value (estimated useful life five years). The lease started on January 1, 2020. Flint uses a target rate of return of \(8 \%\) in all lease contracts. The first payment was on January 1, 2020, and the accounting periods end on December 31. The equipment reverts to the lessor at the end of the lease term at which time the lessor estimates that the equipment will have an unguaranteed residual value of \(\$ 2,000\).