Question - The Edom Company, the lessor, enters into a lease with Jebusite Company to lease equipment to Jebusite beginning January 1, 2014. The lease terms, provisions, and related events are as follows:
1. The lease term is five years. The lease is non-cancelable and requires annual rental receipts of $86,964.05to be made in advance at the beginning of each year.
2. The equipment has an estimated life of six years.
3. Jubusite agrees to pay all executory costs.
4. The interest rate of the lessee for this type of purchase is 8%.
The fair value of the minimum lease payments is $375,000, the fair market value of the asset $450,000.
1. Prepare an amortization table for the first 3 years of lease payments and interest expense of the lessee.
2. Prepare journal entries for Jebusite Company, the lessee, for the years 2014 and 2015.