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Elton Electronics leases testing equipment to Startup Corporation. The equipment is not specialized and is delivered...

Elton Electronics leases testing equipment to Startup Corporation. The equipment is not specialized and is delivered on January 1, 2019. The fair value of the equipment is $90,000. The cost of the equipment to Elton is $85,000 and the expected life of the testing equipment is 8 years. The lease term for the equipment is 8 years, with the first payment due upon delivery, and seven subsequent annual payments beginning on December 31, 2019 and ending on December 31, 2025. Elton's implicit rate is 8% and they expect that collection of the eight payments of $14,500 payments is probable. Assume there are no initial direct costs with this lease. There are also no nonlease components.

The present value of the lease payments is $89,992.

  1. Using the five Group I criteria, how will Elton classify this lease?
  2. Prepare the journal entries for the lessor to record the commencement of the lease and receipt of the first payment on January 1, 2019.
  3. Prepare an amortization table for Elton's net investment through December 31, 2021

    1. Date

      Payment

      Interest

      Reduction in Principal

      Balance

      Commencement

      1-Jan-19

      31-Dec-19

      31-Dec-20

      31-Dec-21
  4. What is the journal entry for the lessor at the end of the first year on 12/31/19?

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Expert Solution

ekkarill92 answered 1 year ago
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