On January $1,2022,$ Aac Lessee leased equipment from sters Manudecturing Lensor at a price of

$$159,092.$ Sears Manufacturing Lessor manulactured the equipment at a cost of $5100,000.$

The lease agreement specifies $5$ annual payments beginning January in $200,$ the inception of the

lease, and on each January iv thereafter through $2026.$ The $5$ year lease term ends on December $31.$

Stars Manufacturing Lessor estimates the useful life of the equipment to be b years.

Stars Manufacturing Lessos estimates the resicual vatie to ba $$12,000,$ and the Lessor requires the

Lessee to puaranter the rosidual value at the end of the lease term. ABC Lessee awees that the

equipment will be worth at least $$12,000$ or more at the end of the lease term.

The lease does not contain a renewal or purchase option, and the equipment reverts to the Lessor at

the end of the $5$ year period.

Stars Manufacturing Lessor routinely leases its inventory to customers. The implicit inserest in their

contracss is $a{x}_2,$ and ABC Lessee is amare of this rate.

ABC Lessee depreciates assets using the Straight$-$Line method for Depredation.

How will the lease be classified by the Lessor and Lessee?

This lease is classified as an operating leave for both the lessor and lessee

b$.$ What will be the Annual Lease Payment that Stars Manufacturing Lessor weil require from ABC

Lessee to cam a return of Bro on this lease agroement?

It will be $$19,362$

For Stars Manutacturing Lessor

c$.$ What is the Fair Value of the lesse contract $($PV of lease payments$)$ that Stars Manufocturing

Lossor will record on their Balance Sheet as a Laase Receivable?

The amount will be $$128,290$

d$.$ For Stars Manuficturing Lessor, prepare an amortization schodule using the effective interest

method over the term of the lesse.

e$.$ Prepare journal entries for Stars Manufacturing Lessor an the following dates:

Lanusry $1,2022$

December $31,2022$

January $1,2023$

December $31,2023$

January $1,2024$

End of Leuse:

December $31\mathrm{.}2026$

danuary $1,2027$

For ABC Lossoe

What is the Fair value of the lease contract $($Py of lesse payments$)$ that ABC Lessee will

capitalize on their Balance Sheet as a Right$-$of$-$Use Assert and Lease Llablitizy?

B$.$ For ABC Lessee, prepare an amortiratlon schedule using the effective inceress method over the

term of the lease.

h$.$ Prepare journal entries for ABC Lossee on the following dates:

January $1,2022$

December $31,2022$

January $1,2023$

December $31,2023$

January $1,2024$