Problem
Keller Corporation (the lessee) entered into an equipment lease with Dallo Company (the lessor) on January 1 of Year 1
1. The equipment reverts back to the lessor at the end of the lease, and there is no bargin purchase option.
2. The lease term is 8 years and requires annual payments if $10,000 at the end of each year.
3. The equipment's fair value at lease inception is $100,000. Assume that the present value of minimum lease payment is $50,000.
4. The equipment has an estimated economic life 20 years and has zero residual value at the end of this time.
Prepare the journal entry that Keller Corporation would make each year assuming the lease is classified as an operating lease.