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Calculate the amount of lease liability

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Question - On January 1. 2020, Harry (the Lessee) Company leased equipment from Porter Company. The lease had a non-cancelable four-year term and required annual lease payments of $72,000 to be paid on January 1 of each year with the first payment due January 1. 2020. In addition, Harry also needs to make annual payment of $2,400 (fixed) to the lessor for executory costs (such as insurance and property tax) on January 1 of each year.

Harry guarantees a $45,000 residual value, and estimates an expected residual value of $37,800 at the end of the lease term.

Harry incurred $4.800 legal fees from the execution of the lease.

The estimated economic life of the equipment is 5 years, Harry appropriately classifies the lease as a finance lease.

Harry's incremental borrowing rate is 6%. and the lessor's implicit interest rate is 5%. which is known by Harry. Harry uses straight-line depreciation for its plant assets.

Required -

A. Calculate the amount of Lease Liability, and prepare lease amortization schedule over the first 2 years of lease term for the lessee.

B. Prepare journal entries for the lessee for 2020 and 2021.

C. Show how to report the related assets and/or liabilities on the Lessee's Balance Sheet as of December 31, 2021.

Reference no: EM132976593

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