On January 1, 201x, Avery Accessories, Inc. entered into a 4 year, non-cancelable lease for a fleet of automobiles. The economic life of the vehicles are 4 years, and title transfers at the end of the leasing period, with bargain purchase price of $75,000. The lease calls annual payments of $150,000, beginning with the signing of the lease, and at the beginning of the next three years. The bargain purchase price will be paid at the end of the fourth year. The borrowing rate for Avery is 8%.
Required:
1) Prepare, in good form, a "Schedule of Lease Payments" (Note, be sure to round off the past payment to reflect the balance due on the lease as $ 0)
2) Prepare the journal entries to record the acquisition of the leased property.
3) Prepare the journal entries to record the lease payments for years one and Two, as well as the lease amortization. Use the straight-line method.