Assume that Lennox Co. leases equipment from Joey Co. with the following terms:
Lease Period: 5 years, beginning 1/1/11. Noncancelable. First payment due 1/1/2011. Remaining Lease payments made on each January 1.
Rental Amount: $65,000 payable in advance INCLUDES $5,000 to cover Executory costs for property taxes.
Estimated Economic Life of equipment: 10 years.
Expected Residual value: None
Lessee's incremental borrowing rate (Lessor's implicit rate is unknown): 10%
Bargain Purchase Option $75,000
Requirements:
1). Prepare a Lease Amortization schedule for the entire lease.
2). Prepare the journal entries for the period 1/1/11 to 1/1/2012
3) Prepare the journal entry to record the exercise of the Bargain Purchase Option at the end of the lease term.