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Create lease amortization table for the lease for DEF

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Reference no: EM132769790

Question - On January 1st, 2019, ABC Inc. (the lessor) agrees to lease a piece of specialized piece of machinery to DEF Inc. (the lessee) for 5 years. ABC Inc. is a financial intermediary specializing in leasing arrangements such as the one described below. Details are as follows:

- Fair value of machinery at inception of the lease: $100,000.

- Lease term: 5 years (no bargain renewal terms).

- 5 Annual lease payments of $23,000 each are made on January 1st of each year starting on January 1st, 2019

- Bargain purchase option at end of lease: $5,000.

- Economic life of the asset is 10 years, after which the equipment will be worthless. Straight-line depreciation applies.

ABC's implicit interest rate with respect to this lease is 10%. This rate is not known to the lessee.DEF Inc's incremental borrowing rate is 9%.

REQUIRED - Assuming that this qualifies as a right-of-use lease.

a) Create lease amortization table for the lease for DEF.

b) Create all entries that DEF will record for this leased equipment in 2019 and 2020.

Reference no: EM132769790

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