The following facts pertain to a non-cancelable lease agreement between Mooney Leasing Company and Rode Company, a lessee.

Commencement date                                                                                             May 1, 2020
Annual lease payment due at the beginning of each year, beginning
with May 1, 2020.........................................................................................................$20,471.94
Bargain purchase option price at end of lease term...............................................$ 4,000.00
Lease term.........................................................................................................................5 years
Economic life of leased equipment..............................................................................10 years
Lessor’s cost................................................................................................................$65,000.00
Fair value of asset at May 1, 2020............................................................................$91,000.00
Lessor’s implicit rate................................................................................................................8%
Lessee’s incremental borrowing rate....................................................................................8%

The collectibility of the lease payments by Mooney is probable.

Instructions

(Round all numbers to the nearest cent.)

a. Discuss the nature of this lease to Rode.

b. Discuss the nature of this lease to Mooney.

c. Prepare a lease amortization schedule for Rode for the 5-year lease term.

d. Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2020 and 2021. Rode’s annual accounting period ends on December 31. Reversing entries are used by Rode.