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What type of lease is this for the lessor

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Question - Hayes Corp. is a manufacturer of truck trailers. On January 1, 2018, Hayes Corp. leases ten trailers to Lester Company under a six-year non-cancelable lease agreement. The following information about the lease and the trailers is provided:

1. Equal annual payments that are due on January 1 each year provide Hayes Corp. with an 8% return on net investment (present value factor for 6 periods at 8% is 4.99271).

2. Titles to the trailers pass to Lester at the end of the lease.

3. The fair value of each trailer is $60,000. The cost of each trailer to Hayes Corp. is $54,000. Each trailer has an expected useful life of nine years.

4. Collectibility of the lease payments is probable.

Instructions -

(a) What type of lease is this for the lessor? Discuss.

(b) Calculate the annual lease payment. (Round to nearest dollar.)

(c) Prepare a lease amortization schedule for Hayes Corp. for the first three years.

(d) Prepare the journal entries for the lessor for 2018 to record the lease agreement, the receipt of the lease rentals, and the recognition of revenue (assume the use of a perpetual inventory method and round all amounts to the nearest dollar).

Reference no: EM132529455

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