Option #1: Lease
Complete the following questions. In addition to answering theitems below, you must submit an analysis of the assignment. Analyzethe specific outcomes and write an analysis directed toward theteam at Coco Inc. describing what the numbers mean and how theyrelate to the business. Submit journal entries in an Excel file andwritten segments in an MS Word document. For written answers,please make sure your responses are well-written, formatted perCSU-Global Guide to Writing and APA (Links to an external site.)and have proper citations, where applicable.
Assume that the following facts pertain to a non-cancelablelease agreement between Coco Inc. and Bubs Corp, a Lessee.
Inception date
January 1, 2018
Residual value of equipment at end of lease term,unguaranteed
$100,000
Lease term
6 years
Economic life of leased equipment
8 years
Fair value of asset at January 1, 2017
$800,000
Lessor’s implicit rate
12%
Lessee’s incremental borrowing rate
10%
The lessee assumes responsibility for all executory costs,which are expected to amount to $4,000 per year. The asset willrevert to the lessor at the end of the lease term. The lessee usesthe straight-line depreciation method for all equipment.
1. Using the spreadsheet Lease Amort Schedule, prepare anamortization schedule that would be suitable for the lessee for thelease term.
2. Using the spreadsheet Journal Entries, prepare the journalentries for the lessee for 2018 and 2019 to record the leaseagreement and all expenses related to the lease. Assume theLessee’s annual accounting period ends on December 31 and thatreversing entries are used when appropriate.
3. Prepare journal entries for the lessor of thetransaction.
