ACCT $51$B

Chapter $20$ Exercise

You must submit your solution as ONE PDF file. Google Docs$/$Sheets allows you to download your work into a PDF file by going to the "File" menu item and selecting "Download" and $"$PDF$".$ You must format your work correctly$/$professionally ensuring that your submission doesn't have your work being split and cut off onto multiple pages. Simply submit ONE PDF file that you could print and turn in if this were an in$-$person course.

Case Instructions

On January $1,2023,$ Harker leased equipment to Leland Company under a six$-$year noncancelable lease agreement. The following information about the lease and the equipment is provided:

Equal annual payments that are due on January $1$ each year provide Harker with an $8\%$ return on net investment.

Title to the equipment passes to Leland at the end of the lease.

The fair value of the equipment is $$600,000.$ The cost of the equipment to Harker is $$540,000.$ The equipment has an expected useful life of nine years.

Collectibility of the lease payments is probable.

Instructions

$($a$)$ Using the lease tests outlined in Chapter $20,$ determine what type of lease this is for the lessor.

$($b$)$ Calculate the annual lease payment. $($Round to nearest dollar.$)$

$($c$)$ Prepare a lease amortization schedule for Harker Corporation for the first three years.

$($d$)$ Prepare the journal entries for the lessor for $2023$ to record the lease agreement, the receipt of the lease rentals, and the recognition of revenue $($assume the use of a perpetual inventory method and round all amounts to the nearest dollar$).$