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12.5 points In January 1, 2020, Rashed Company signs a 3-year, non-renewable and non-cancelable lease agreement to lease a warehouse building from Manama Company. The lease agreement requires equal annual rental payment of $120,000 beginning on January 1, 2020. The following information pertains to this lease agreement. 1. The Fair value of the building at January 1, 2020 is $320,000. 2. The building has an estimated economic life of 4 years. 3. The yearly rental payment includes $7,243.86 of executory costs related to taxes on the property 4. The lessee's incremental borrowing rate is 10%. The lessor's implicit rate is 8% and is known to the lessee. 5. The building will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $24,000, non of which is guaranteed. 6. Both Rashed Company and Manama Company use the straight-line method of depreciation. Additional information: The present value of an Ordinary Annuity of $1 and the present value of an Annuity Due of $1 for 5 periods at 8%, 9% and 10% are as follows: The present value of an Ordinary Annuity of $1 Period 8% 9% 1 0.92593 0.91743 2 1.78326 1.75911 3 2.57710 2.53129 4 3.31213 3.23972 5 3.99271 3.88965 10% 0.90909 1.73554 2.48685 3.16987 3.79079 The present value of an Annuity Due of $1 Period 8% 9% 1 1.00000 1.00000 2 1.92593 1.91743 3 2.78326 2.75911 4. 3.57710 3.53129 5 4.31221 4.23972 10% 1.00000 1.90909 2.73554 3.48685 4.16987 Instructions: (a) What is the nature of this lease to Rashed Company? Why? (b) Prepare an amortization schedule through the years 2020 and 2021 that would be suitable for the lessee (c) Prepare all of the journal entries for the lessee for the year 2020 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee's annual accounting period ends on December 31. (d) Assume that the $24,000 is guaranteed residual value show the effect on (0) the amount to be capitalized and (ii) on the depreciation. 8%, 3 periods 10%, 3 period PV Single Sum .79383 .75132 12.5 points In January 1, 2020, Rashed Company signs a 3-year, non-renewable and non-cancelable lease agreement to lease a warehouse building from Manama Company. The lease agreement requires equal annual rental payment of $120,000 beginning on January 1, 2020. The following information pertains to this lease agreement. 1. The Fair value of the building at January 1, 2020 is $320,000. 2. The building has an estimated economic life of 4 years. 3. The yearly rental payment includes $7,243.86 of executory costs related to taxes on the property 4. The lessee's incremental borrowing rate is 10%. The lessor's implicit rate is 8% and is known to the lessee. 5. The building will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $24,000, non of which is guaranteed. 6. Both Rashed Company and Manama Company use the straight-line method of depreciation. Additional information: The present value of an Ordinary Annuity of $1 and the present value of an Annuity Due of $1 for 5 periods at 8%, 9% and 10% are as follows: The present value of an Ordinary Annuity of $1 Period 8% 9% 1 0.92593 0.91743 2 1.78326 1.75911 3 2.57710 2.53129 4 3.31213 3.23972 5 3.99271 3.88965 10% 0.90909 1.73554 2.48685 3.16987 3.79079 The present value of an Annuity Due of $1 Period 8% 9% 1 1.00000 1.00000 2 1.92593 1.91743 3 2.78326 2.75911 4. 3.57710 3.53129 5 4.31221 4.23972 10% 1.00000 1.90909 2.73554 3.48685 4.16987 Instructions: (a) What is the nature of this lease to Rashed Company? Why? (b) Prepare an amortization schedule through the years 2020 and 2021 that would be suitable for the lessee (c) Prepare all of the journal entries for the lessee for the year 2020 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee's annual accounting period ends on December 31. (d) Assume that the $24,000 is guaranteed residual value show the effect on (0) the amount to be capitalized and (ii) on the depreciation. 8%, 3 periods 10%, 3 period PV Single Sum .79383 .75132