Lessor leased a crane to Lessee for 6 years beginning on January 1, 2016. Each payment is $45, 200 and the first payment is made on Dec. 31, 2016.
Cost of the crane to the lessor was $140,000.
Estimated useful life of the crane is 10 years and the estimated residual value at the end of the 10 years is $10,000.
Selling price of the crane is $210,000.
There is no transfer and no purchase option in the lease.
Estimated residual value at the end of the lease term is $23, 280 and it is not guaranteed by any party.
Lessee's incremental borrowing rate is 12.5% and the lessee also knows that the lessor's implicit rate 10%.
Future payments are expected to be predictable and there are no cost uncertainties left out of the contract.
1. What type of lease is this for the Lessee? Check all four criteria and for your answer.
2. What type of lease this for the Lessor? Check all four criteria plus the two additional is lessor criteria and for your answer.
For both the Lessor, give the entry or entries at inception of the lease and at the first payment date.
(See the yellow box on the bottom of page 876 of the text for help in doing the Lessor's first entry.)