Coronado Leasing Company agrees to lease equipment to Whispering Corporation on January 1, 2020. The following information relates to the lease agreement.

1.		The term of the lease is 6 years with no renewal option, and the machinery has an estimated economic life of 8 years.
2.		The cost of the machinery is $313,000, and the fair value of the asset on January 1, 2020, is $441,000.
3.		At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $36,300. Whispering estimates that the expected residual value at the end of the lease term will be $36,300. Whispering amortizes all of its leased equipment on a straight-line basis.
4.		The lease agreement requires equal annual rental payments, beginning on January 1, 2020.
5.		The collectability of the lease payments is probable.
6.		Coronado desires a 6% rate of return on its investments. Whispering’s incremental borrowing rate is 8%, and the lessor’s implicit rate is unknown.

Discuss the nature of this lease for both the lessee and the lessor.
Calculate the amount of the annual rental payment required.
Compute the present value of minimum lease payments.
Prepare the journal entries Coronado would make in 2020 and 2021 related to the lease arrangement.
Prepare the journal entries Whispering would make in 2020 and 2021 related to the lease arrangement.
Suppose Coronado expects the residual value at the end of the lease term to be $26,300 but still guarantees a residual of $36,300.
Compute the value of the lease liability at lease commencement.

Answer rating: 100% (QA)

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