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20. Use the following information to answer the questions below. The equipment of lease...

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Accounting

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20. Use the following information to answer the questions below. The equipment of lease has 5-year service life with no salvage value. The lease term is 5 years, requiring equal payment of $25,981.62 at the beginning of year. The annual $25,981.62 rental payment includes $2,000 insurance and property taxes per year. The lessee depreciates similar equipment on a straight- line basis. The discount rate is 10%. a) Determine whether the lease is capital lease or operating lease, and why. (4 points) b) Using the appropriate factor, calculate the present value of lease payments. (3 points) FVF5, 10% = 1.61051 PVF5,10% = .62092 FVF-0A5, 10% = 6.10510 PVF-0A5, 10% = 3.79079 PVF-AD5, 10% 4.16986 c) Complete the following lease amortization schedule. (25 points) Lease Amortization Schedule Lease Payment Executory Costs Lease-Liability Carrying Lease Interest (10%) Reduction Liability Year 1 2 3 4 5 d) Prepare the journal entries at the beginning of lease. (5 points) e) Prepare the journal entries at the end of Year 1 (=at the beginning of Year 2). (6 points) f) Prepare the journal entries at the end of Year 5 (=at the end of lease) for the case that the leased equipment is returned. (2 points)

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