Terms of a Lease Agreement and Related Facts Were

Essay

Terms of a lease agreement and related facts were:
a. The lease asset had a retail cash selling price of $200,000. Its useful life was six years with no residual value (straight-line depreciation).
b. Annual lease payments at the beginning of each year were $41,746, beginning January 1.
c. Lessor's implicit rate when calculating annual rental payments was 10%.
d. Incremental costs of negotiating costs of negotiating and consummating the completed lease transaction incurred by the lessor were $4,124.
Required:
Round your answers to the nearest whole dollar amounts.
Prepare the appropriate journal entries for the lessor to record the lease, the initial payment at its beginning, and at the December 31 fiscal year-end under each of the following three independent assumptions:
1. The lease term is three years and the lessor paid $200,000 to acquire the asset (operating lease).
2. The lease term is six years and the lessor paid $200,000 to acquire the asset. Also assume that adjusting the lease receivable (net investment) by initial direct costs reduces the effective rate of interest to 9%.
3. The lease term is six years and the lessor paid $170,000 to acquire the asset.