Eastern Edison Company leased equipment from Low-Tech Company on January 1, 2021. Low-Tech manufactured the equipment at a cost of $120,000. Annual payments are $12,590 with the first payment on January 1, 2021.

Other information:

Lease term	3 years
Useful life of asset	10 years
Fair value of equipment	$120,000
Interest rate	5%
Present value of an ordinary annuity of $1 (n = 3, i=5%)	2.72325
Present value of an annuity due of $1 (n=3, i=5%)	2.85941

Required: 

Prepare appropriate journal entries for Low-Tech (the lessor) for 2021. Assume straight-line amortization and a December 31 year-end.

[1] What is the appropriate classification for this lease (finance/sales-type or operating)? Why?

[2] Prepare the journal entry or entries, for the lessor, necessary at the time of lease signing (January 1, 2021). If no entry is necessary, write "no entry needed".

[3] Prepare the journal entry or entries, for the lessor, necessary at the time of the first lease payment (January 1, 2021).

[4] Prepare the journal entry or entries, for the lessor, necessary at the second lease payment (December 31, 2021).

Answer rating: 100% (QA)

1 Its operating lease because it does not satisfy the following condition ... View the full answer