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On January 1 of Year 1, Cane Company signed a five-year lease contract for equipment...

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Accounting

On January 1 of Year 1, Cane Company signed a five-year lease contract for equipment with Abel Company. The equipment had a normal selling price of $55,000 and an estimated useful life of six years. Five annual payments of $11,815 are payable by Abel on each January 1, beginning at the lease commencement. The asset reverts to Cane at the end of the lease term. Canes implicit interest rate is 6%, which is known to Abel. Abel also paid legal fees in the execution of the lease of $1,800 on January 1 of Year 1, and the equipment is estimated to have an unguaranteed residual value of $3,000 at the end of the lease.

Required

a. How would Abel Company classify the lease? AnswerFinance LeaseOperating LeaseSales-Type Lease

Calculate the Lease Liability Schedule and prepare the Journal Entries

  • Lease Liability Schedule
  • Journal Entries

b. Prepare a schedule of the lease liability for the rst two years of the lease term. Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.

Please give each details where you get the numbers please and thank

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