On January 1, 2018 WAG entered into a non-cancellable leaseagreement with PE for the...

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On January 1, 2018 WAG entered into a non-cancellable leaseagreement with PE for the lease of specialized laboratory equipmentdesigned to draw blood to perform health tests for their customers.The lease agreement requires WAG to make beginning of the yearpayments for the 5-year term of the lease. The fair value of theequipment at lease inception is $25,418,156. WAG guarantees to PEthat the residual value of the equipment at the end of the term ofthe lease will be $2,500,000. However, given that the equipment isheavily used by WAG it has an expected residual value at the end ofthe lease of $2,250,000.
The useful life of the equipment is 10 years with a salvagevalue to PE of $2,500,000. Both PE and WAG use the straight-linemethod of depreciation (or amortization) for their equipment andright of use assets. The lease contract includes a written optionthat would give WAG the option to purchase the underlying equipmentfor a price of $3,500,000.
Collectability of lease payments is reasonably predictable.
PE's implicit rate of return of 8% is known to WAG and WAG'sincremental borrowing rate is 10%.
1) What would be the amount to be recovered by the lessor (PE)through equal lease payments?
2) From the perspective of the lessee, which criteria forclassifying a lease as a finance lease were met?
3) What would be the journal entry that WAG needs to post totheir general ledger to recognize the lease inception and firstpayment on January 1, 2019?
4) Amortization expense recorded by WAG in each year would becalculated as:

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In: AccountingOn January 1, 2018 WAG entered into a non-cancellable leaseagreement with PE for the lease...On January 1, 2018 WAG entered into a non-cancellable leaseagreement with PE for the lease of specialized laboratory equipmentdesigned to draw blood to perform health tests for their customers.The lease agreement requires WAG to make beginning of the yearpayments for the 5-year term of the lease. The fair value of theequipment at lease inception is $25,418,156. WAG guarantees to PEthat the residual value of the equipment at the end of the term ofthe lease will be $2,500,000. However, given that the equipment isheavily used by WAG it has an expected residual value at the end ofthe lease of $2,250,000.The useful life of the equipment is 10 years with a salvagevalue to PE of $2,500,000. Both PE and WAG use the straight-linemethod of depreciation (or amortization) for their equipment andright of use assets. The lease contract includes a written optionthat would give WAG the option to purchase the underlying equipmentfor a price of $3,500,000.Collectability of lease payments is reasonably predictable.PE's implicit rate of return of 8% is known to WAG and WAG'sincremental borrowing rate is 10%.1) What would be the amount to be recovered by the lessor (PE)through equal lease payments?2) From the perspective of the lessee, which criteria forclassifying a lease as a finance lease were met?3) What would be the journal entry that WAG needs to post totheir general ledger to recognize the lease inception and firstpayment on January 1, 2019?4) Amortization expense recorded by WAG in each year would becalculated as: