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  3. on january 1, 2020, carter company, a manufacturer

On January 1, 2020, Carter Company, a manufacturer, leases equipment with an estimated economic life...

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Accounting

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On January 1, 2020, Carter Company, a manufacturer, leases equipment with an estimated economic life of 10 years and leases it to Addison Airlines for a period of 8 years. The normal selling price (current fair value) of the equipment is $299,140. The equipment cost Carter Company $180,000 in manufacturing costs and is in inventory for that amount. Addison will pay annual payment of $44,495 at the beginning of each year beginning with January 1, 2020. The residual value of the asset is estimated by Carter to be $10,000 but this residual value is not guaranteed by Addison Carter has determined that the collectability of the lease payment is probable and that the implicit interest rate is 6%. Addison has an incremental borrowing rate of 7% but is aware of the implicit rate of return. Both companies have a year end of December 31, and both companies normally depreciate their assets using straight line depreciation. 1 A B 1 EE % a. What type of lease is this for Carter Company and Why? b. Prepare all of the lessor's journal entries for the first year (2020)

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