The following facts pertain to a non cancelable lease agreement between L Leasing Company and G Company, a lessee.
Inception date: May 1, 2012
Annual lease payment due at the beginning of each year, beginning with May 1, 2012 $18,829.49
Bargain-purchase option price at end of lease term $ 4,000.00
Lease term 5 years
Economic life of leased equipment 10 years
Lessors cost $65,000.00
Fair value of asset at May 1, 2012 $81,000.00
Lessors implicit rate 10%
Lessees incremental borrowing rate 10%
The collectability of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs.
Instructions
(Round all numbers to the nearest cent.)
(a) Discuss the nature of this lease to G Company.
(b) Discuss the nature of this lease to L Company.
(c) Prepare a lease amortization schedule for G Company for the 5-year lease term.
(d) Prepare the journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2012 and 2013. G’s annual accounting period ends on December 31. Reversing entries are used by G.