Accounting $2036,$ Assignment #$1$

On July $1$st$,20$X$4,$ the Yuan Yuan Guo Corporation, a manufacturer and distributor of

DVD recorders, entered a lease with Zhiyin Huang Rental Inc. Yuan Yuan Guo agreed

to lease $20$ DVDs for a period of six years beginning July $1$st$,20$X$4.$ Other lease terms

as follows:

Annual Lease Payments beginning $01/07/$X$4...............................................$ $ $2,003$

Manufacturing Cost of each DVD $.................................................................300$

Normal Selling Price of each DVD $................................................................525$

Estimated economic $($EUL$)$ for the DVD$$s $....................................................9$ years

Implicit rate in the lease $($not known by Zhiyin Huang$).................................10\mathrm{.}0\%$

Estimated Residual Value of each DVD at the end of the lease term

$($not guaranteed by Zhiyin Huang$)................................................................$ $ $80$

Zhiyin Huang can borrow at $12\mathrm{.}0$ percent and agrees to assume full responsibility for all

repairs and maintenance of the machines. Zhiyin Huang will return the DVDs to Yuan

Yuan Guo. Since Zhiyin Huang is a good credit risk, Yuan Yuan Guo is certain to collect

the lease payments and will not incur any additional costs after the date of the lease

agreement. Both Companies follow ASPE Required:

Required:

$1.$ Determine how Yuan Yuan Guo, the lessor, and Zhiyin Huang, the lessee, should

classify the lease.

$2.$ Prepare all required journal entries for the Lessee on July $1$st$,20$X$4.$

$3.$ Prepare the required journal entries for the Lessee on December $31$st$,20$X$4$

$($assuming a December $31$st Fiscal Year End$).$

$4.$ Prepare the required journal entries for the Lessee on July $1$st$,20$X$5.$

$5.$ Prepare the required journal entries for the Lessee on December $31$st$,20$X$5$

$($assuming a December $31$st Fiscal Year End$).$

$6.$ Prepare all required journal entries for the Lessor on July $1$st$,20$X$4.$

$7.$ Prepare the required journal entries for the Lessor on December $31$st$,20$X$4$

$($assuming a December $31$st Fiscal Year End$).$

$8.$ Prepare the required journal entries for the Lessor on July $1$st$,20$X$5$

$9.$ Prepare the required journal entries for the Lessee on December $31$st$,20$X$5$

$($assuming a December $31$st Fiscal Year End$).$

$10.$ Assume that when the DVD$$s are returned to Yuan Yuan Guo at the end of the

lease term, the residual value of each DVD is only $$70.$ Prepare the journal entry to

record the return of the machines by Zhiyin Huang.