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On 3 January 2023, Jumpin lnc. (Lessor) enters into a lease arrangement with Cordle Corporation...

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Accounting

On 3 January 2023, Jumpin lnc. (Lessor) enters into a lease arrangement with Cordle Corporation (Lessee) to lease a piece of manufacturing equipment. Jumpin purchased the equipment for $86,400, which is considered to be the fair value. Lease payments are $24,900 per year, due at the beginning of the year. The lease term is 4 years. The equipment has no residual value at the end of the lease term. The rate implicit in the lease is 10.39%.

  1. Determine how to classify each type of lease: operating, financing, or manufacturer/dealer. Explain your reasoning.
  2. Prepare the journal entries for the first year of the lease, assuming each company has a 31 December year-end. For financing-type leases, use the net method.
  3. Explain the accounting under ASPE.

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