Lessee Company on January 1 2010 enters into a 5 year

Lessee Company on January 1, 2010, enters into a 5-year non-cancelable lease, with two
renewal options of one year each, for equipment having a estimated useful life of 8 years.
Lessee's incremental borrowing rate is 10%. Lessee uses the straight-line method to depreciate
its assets. The lease contains the following provisions:1. Rental payments of $80,000 including
8,000 for property taxes, payable at the beginning of each six-month period.2. A termination
penalty assuring renewal of the lease for a period of two years after expiration of the initial lease
term.3. An option allowing the lessor to extend the lease one year beyond the last renewal
exercised by the lessee.4. A guarantee by lessee that lessor will realize $40,000 from selling the
asset at the expiration of the lease. However the actual residual value is $28,000.*What journal
entries would lessee record during the first year of the lease? (Include an amortization schedule
through 1/1/2011 and round to the nearest dollar.View Solution:
Lessee Company on January 1 2010 enters into a 5 year
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