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Determine the classification of the lease

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Reference no: EM133021760

Question - On January 1, 20X4, Solarcom Inc. entered into a new lease for equipment with the following terms:

Annual lease payment due on January 1,20x4 for $55,000.

Included in the lease payment is $3,000 for insurance and maintenance costs.

The lease term is seven years. At the end of the lease there is a guaranteed residual amount of $10,000, which Solarcom expects it will pay.

The lease has an implied interest rate of 6.2%, which is known to Solarcom.

Solarcom has a calendar year.

Useful life of the asset 10 year.

Fair value of the asset at the time of inception of lease is $314,000.

Required -

1. Determine the classification of the lease.

2. Prepare all the journal entries for 20X4 related to this lease. Note that M Solarcom has a December 31 year end.

Reference no: EM133021760

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