Lester Company, as lessee, enters into a non-cancelable lease agreement for equipment on January 1, 2021....

  

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Lester Company, as lessee, enters into a non-cancelable lease agreement for equipment on January 1, 2021. The following information about the lease is provided: 1. The term of the non-cancelable lease is 6 years. 2. Equal annual rental payments are due on January 1 each year, beginning in 2021. 3. The fair value of the equipment on January 1, 2021, is $200,000, and its cost is $160,000. 4. The equipment has an economic life of 10 years from the commencement of the lease. Both Lester Company and the lessor depreciate their equipment on a straight-line basis. 5. At the end of the lease term, the equipment reverts to the lessor and has an unguaranteed residual value of $50,000. 6. The lessor's implicit rate is 5%, which is unknown to Lester Company. Lester's incremental borrowing rate is 6%. 7. Both Lester Company and the lessor's accounting periods end on December 31. Required: (Round all amounts to the nearest Dollar.) (a) Discuss the nature of this lease to the lessor. (b) Calculate the annual rental payment for the lessor. (c) Calculate the initial balance of the lease liability for the lessee. (d) Prepare all the necessary journal entries for the lessee, for 2021. (e) Prepare all the necessary journal entries for the lessor, for 2021. PV of 1 PV of an Ordinary Annuity of 1 PV of an Annuity Due of 1 i = 5%, n = 6 i = 6%, n = 6 0.74622 5.07569 5.32948 0.70496 4.91732 5.21236 Lester Company, as lessee, enters into a non-cancelable lease agreement for equipment on January 1, 2021. The following information about the lease is provided: 1. The term of the non-cancelable lease is 6 years. 2. Equal annual rental payments are due on January 1 each year, beginning in 2021. 3. The fair value of the equipment on January 1, 2021, is $200,000, and its cost is $160,000. 4. The equipment has an economic life of 10 years from the commencement of the lease. Both Lester Company and the lessor depreciate their equipment on a straight-line basis. 5. At the end of the lease term, the equipment reverts to the lessor and has an unguaranteed residual value of $50,000. 6. The lessor's implicit rate is 5%, which is unknown to Lester Company. Lester's incremental borrowing rate is 6%. 7. Both Lester Company and the lessor's accounting periods end on December 31. Required: (Round all amounts to the nearest Dollar.) (a) Discuss the nature of this lease to the lessor. (b) Calculate the annual rental payment for the lessor. (c) Calculate the initial balance of the lease liability for the lessee. (d) Prepare all the necessary journal entries for the lessee, for 2021. (e) Prepare all the necessary journal entries for the lessor, for 2021. PV of 1 PV of an Ordinary Annuity of 1 PV of an Annuity Due of 1 i = 5%, n = 6 i = 6%, n = 6 0.74622 5.07569 5.32948 0.70496 4.91732 5.21236

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