Question: Problem 2.1: Chapter 21 - Leases (15 points) On January 1, 2020, Kara Danvers leased an airplane from Diana Prince. The lease terms are as

Problem 2.1: Chapter 21 - Leases (15 points) On January 1, 2020, Kara Danvers leased an airplane from Diana Prince. The lease terms are as below.

Lease Term (yrs) 10 Guaranteed Residual Value $0 Minimum Lease Payment $250,000 Expected Residual Value $300,000 Fair Value $2,000,000 Lessee Attorney Fees (on 1/1/2020) $15,000 Asset Cost (on Stitch's Books) $1,650,000 Ownership at End of Lease Diana Prince Asset Life (yrs) 15

If applicable, Diana Prince depreciates all assets on a straight-line basis. Kara Danvers uses 9% as its required rate of return when calculating lease returns. Diana Prince has an 10% imputed interest rate and Kara Danvers is aware of this. All amounts are paid on January 1 of each year. Both Danvers and Prince have December 31 year-ends.

REQUIRED: Answers the following for Kara Danvers: (PLEASE CLEARLY SHOW AND LABEL YOUR WORK)

2.1.1 [2 pts] What is the classification of this lease and why? (show all 5 tests)

2.1.2 [4 pts] What is the journal entry for January 1, 2020?

2.1.3 [4 pts] What is the journal entry for December 31, 2020?

2.1.4 [2 pts] What is the journal entry for January 1, 2021?

2.1.5 [3 pts] What is the journal entry for December 31, 2021?

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