Question - On January 1, 2012, A Company signed a non-cancelable to lease a machine from B for 3 years. The machinery had a cost and fair value of $600,000 and a useful life of 7 years. The lease paid annual rental payments on December 31 of each year, starting on December 31, 2012. At the end of the lease term, A Company has the option to purchase the equipment for $10,000. A's incremental borrowing rate is 9% and B's implicit borrowing rate is 7%. A is unaware of implicit rate.
Collectability of the future lease payments is reasonably predictable, and no additional costs related to the lease are expected.
Questions-
1. What type of lease of A Company and B Company?
2. Determine the annual lease payments, as set by B?
3. Determine the minimum lease payments, as calculated by A?
4. Prepare the entry on the date of the lease inception for both the lessee and lesser.
5. Prepare the lessee's amortization schedule for the term of the lease.
6. Prepare the entry for the first interest payment for both the lessee and lesser.
7. Prepare the entry to record depreciation expense for the asset for the year 2013, assuming that A Company uses the straight-line method.