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Determine the required entries on january

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Question - On January 1, 2020, Pear Company leased a piece of general equipment from Apple Co with the following terms:

Annual lease payment $1,100, due at the end of each year

Term of lease: 5 years

Interest Rate: 4%

No ownership transfer or option to purchase at reduced rate at the end of the lease term

Expected asset life: 8 years

Fair value of the equipment being leased: $5,800

a. Determine if the lease should be treated as a finance or operating lease. Based on your analysis, determine the required entries on January 1, 2020 (inception of lease) and December 31, 2020 (end of first year of lease and the first lease payment)?

b. Now assume the expected asset life is 6 years (instead of 8). Determine if the lease should be treated as a finance or operating lease. Based on your analysis, determine the required entries on January 1, 2020 (inception of lease) and December 31, 2020 (end of first year of lease and the first lease payment)?

Reference no: EM133031685

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