On January 1, 2015, Joey Co. leased a color copier from Legoria Corp. The color copier had a fair market value of $479,079. The lease agreement specifies annual payments beginning January 1, 2013, the inception of the lease, in the amount of $92,931. The lease term is 6 years and the economic life of the color copier is 7 years. At the end of the 6 year lease term, the Color copier is expected to have a residual value of $60,000, which is guaranteed by the Lessee. Joey Co’s incremental borrowing rate is 10% and Legoria Corp’s implicit rate is unknown by Joey Co.
Required:
(1) What type of Lease is this for Joey Co.? Show support for your answer
(2) Compute the Present value of the Minimum Lease payments [Show support for your answer, if you use calculator, document what you entered into the calculator]
(3) Prepare the journal entries for Joey Co. [Lessee] for the period from January 1, 2015 [inception of the lease] through January 1, 2016 [the 2nd Lease payment].