Question: For some time, Balster Inc. has maintained a policy of acquiring company equipment by leasing. On December 31, 2005, Balster entered into a lease with Edgemont Fabricators for a new concrete truck that had a selling price of $265,000. The lease stipulates that annual payments of $52,500 will be made for 6 years. The first lease payment is made on December 31, 2005, and subsequent payments are made on December 31, of each year. Balster guarantees a residual value of $45,890 at the end of the 6-year period. The incremental borrowing rate and the implicit interest rate are both 12%. The economic life of the truck is 9 years. Balster uses the calendar year for reporting purposes and straight-line depreciation to depreciate other equipment.
1. Prepare a complete lease amortization table.
2. Give the journal entries that would be made on Balster's books through 12/31/2007.
3. Prepare the journal entry Balster would make at the end of the lease if the market value of the equipment is $29,000.