Problem $1$

On January $1,2024,$ Harry $($the Lessee$)$ Company leased equipment from Porter Company.

The lease had a non$-$cancelable four$-$year term and required annual lease payments of $$72,000$ on January $1$ of each year, with the first payment due on January $1,2024.$

In addition, Harry also needs to make an annual payment of $$2,400($fixed$)$ to the lessor for executory costs $($property insurance and property tax$)$ on January $1$ of each year.

Harry guarantees a $$45,000$ residual value and estimates an expected residual value of $$37,800$ at the end of the lease term.

Harry incurred $$4,800$ in legal fees from the execution of the lease.

The estimated economic life of the equipment is $5$ years. Harry appropriately classifies the lease as a finance lease.

Harry's incremental borrowing rate is $6\%,$ and the lessor's implicit interest rate is $5\%,$ which is known by Harry. Harry uses straightline depreciation for its plant assets.

Present value of $1$ for $4$ periods at $5\%q,0\mathrm{.}82270$

Present value of $1$ for $4$ periods at $6\%0\mathrm{.}79209$

Present value of an Ordinary Annuity of $1$ for $4$ periods at $5\%$

Present value of an Ordinary Annuity of $1$ for $4$ periods at $6\%q,3\mathrm{.}54595$

Present value of an Annuity Due of $1$ for $4$ periods at $5\%3\mathrm{.}46511$

Present value of an Annuity Due of $1$ for $4$ periods at $6\%q,3\mathrm{.}72325$

Click to open: darr $q,$

Required :

A$.$ Calculate the amount of Lease Liability and prepare a lease amortization schedule over the first $2$ years of the lease term for the lessee.

B$.$ Prepare journal entries for the lessee for $2024$ and $2025.$

C$.$ Show how to report the related assets and$/$or liabilities on the Lessee's Balance Sheet as of December $31,2025.$