Gryphon Manufacturing Company manufactures and leases a variety of items. On January 2,2015, Grypgon leased a piece of equipment to Scissors Industry co. The lease is for seven years for an annual amount of $43,500 , payable in advance. The lease payment includes executory costs of $2,500 per year. The equipment has an estimated useful life of 12 years, and it was manufactured by Gryphon at a cost of 180,000. It is estimated that the equipment will have a residual value of 90,000 at the end of the seven-year lease term. There is no privision for purchase of renewal by Scissor at the end of the lease term. However, a third payty has guaranteed the residual value of 90,000. The equipment has a fair value at the lease inception of 250,274. The implicit rate of interest in the contact is 12%, same rate at which Scissor can borrow maney at its bank. All lease payments after one are made on December 31 of each year. Both companies use the straight-line method of depreciation.
Instruction:
1) Give all the entries on the books of lessee and lessor for 2015 and 2016.
2) Show how thw lease would appear on the balance sheet of Gryphon Manufacturing company and Scissor industry as of December 31, 2016
3) Assume the Gryphon sold the equipment at the end of the seven-year lease for 110,000. Give the entry to record sale, assuming that all lease entries have been properly made.