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Prepare the appropriate entries to record the second lease

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Question

Amalgamated Cellular Systems leased a satellite transmission device from Acme Leasing Services on January 1, 2018. Acme paid $800,000 for the transmission device. Its fair value is $800,000.

Terms of the Lease Agreement and Related Information:

Lease term 3 years (6 semiannual periods)

Semiannual lease payments $120,000 at beginning of each period

Economic life of asset 5 years

Interest rate 12%

Required:

1. What is the classification of the lease for both the lessor and the lessee?

2. Prepare the appropriate entries for both Amalgamated Cellular Systems and Acme Leasing Services on January 1, 2018, the beginning of the lease.

3. Prepare an amortization schedule that shows the pattern of interest expense for Amalgamated Cellular Systems and interest revenue for Acme Leasing Services over the lease term.

4. Prepare the appropriate entries to record the second lease payment on July 1, 2018, and adjusting entries on December 31, 2018 (the end of both companies' fiscal years).

Reference no: EM132405096

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