Jay Company, as lessee, enters into a lease agreement on January 1, 2020, to lease equipment. The following data are relevant to the lease agreement.
- The term of the noncancelable lease is three years, with no renewal option. Payments of $12,000 are due on January 1, of each year.
- The fair value of the equipment on January 1, 2020 is $35,000. The equipment has an estimated economic life of five years, and an unguaranteed residual value of $4,000.
- The equipment reverts back to the lessor at the termination of the lease and is expected to have use to the lessor.
- The lessee is aware that the lessor used an implicit rate of 6%.
(Present Value & Future Value Tables are provided on pages 3 and 4)
Instructions:
1. Indicate the type of lease Jay has entered into and why (include a list of the Capital Lease Criteria)
(Present Value & Future Value Tables are provided on pages 3 and 4)
2. Prepare the journal entries on Jay’s books related to the lease agreement for the following dates: (round all amounts to the nearest dollar. Include a partial amortization schedule)
a. January 1, 2020
b. December 31, 2020
c. January 1, 2021
Problem #2 (14 points)
Calculation of lease payments
Zest Company, as lessee, enters into a lease agreement on January 1, 2018, to
lease equipment. The following data are relevant to the lease agreement.
- The term of the noncancellable lease is three years, with no renewal option.
- The fair value of the equipment on January 1, 2018 is $60,000. The estimated residual value is $0.
- The equipment reverts back to the lessor at the termination of the lease.
- The lessor used an implicit rate of 4%.
Instructions:
-Calculate the required amount of the lease payments

Answer rating: 100% (QA)

Answer The criteria for a Finance lease or capital lease shall be any one of the following four a... View the full answer