GE leased equipment from Ryder Leasing on January 1, 2016. Ryder manufactured the equipment at a cost of $90,000.
Other information:
Lease term 3 years
Annual payments $40,000 on January 1 each year
Life of assest 3 years
Implicit interest rate 8%
Incremental rate 8%
PV, annunity due, 3 period 8% 2.7833
PV, ordinary annunity, 3 periods, 8% 2.5771
There is no expected residual value.
1. What type of lease is this? Be specific, and explain.
2. Prepare appropriate journal entries for Ryder Leasing for 2016 and 2017. Assume a December 31 year-end.