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On January 1, 2014, Lesso and Lessee signed a lease calling for 5 annual payments of $10,000 to be made starting on December 31, 2014. The market value and book value of the asset at inception is $41,
On January 1, 2014, Lesso and Lessee signed a lease calling for 5 annual payments of $10,000 to be made starting on December 31, 2014. The market value and book value of the asset at inception is $41,013. Lessee guarentees the full %5,00 residual calue at December 31, 2018, the end of the lease term. Both parties use an interest rate of 10%. Lessee uses straight-line depreciation.
1. What tupe of lease are Lessor and Lessee entering into? Explain.
2. Provide the Jan 1, 2014 and December 31, 2014 journal entries for Lessor.
3. Provide the Jan 1, 2014 and December 31, 2014 journal entries for Lessee.
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