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Determine the classification of the lease to BHC Corporation

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Reference no: EM132910190

Question - On January 1, 2021 BHC Corporation, a manufacturer of equipment, enters into a lease of specialized equipment with Sussex Corp. The lease contains no renewal or purchase options. The lessor classifies the equipment as inventory prior to the lease arrangement.

The following information pertains to the lease.

Lease term: 4 years

Economic life of the leased equipment: 4 years

Annual lease payments: $360,000

Payment date: on Jan. 1, 2021 and at Dec. 31, 2021, 2022, and 2023

BHC Corp's carrying value of the leased equipment: $810,000

Rate implicit in the lease (known by lessee): 8%

Required -

1. Determine the classification of the lease to BHC Corporation.

2. Determine all journal entries relating to the lease for BHC Corporation for 2021. Round your answers to the nearest whole dollar.

3. Determine all journal entries relating to the lease for Sussex Corp. for 2021.

Reference no: EM132910190

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