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On January 1, 2019 Lessee Co., leased equipment fromLessor Co. The equipment had a useful life of 6 years, a fairmarket value of $50,000, and a cost to Lessor Co. of $35,000.Lessor used an implicit interest rate of 7%. The lease is for 6years, and calls for payments of $8,497 on January 1 of each yearbeginning January 1, 2019. The residual value of the equipment onDecember 31, 2024 is estimated to be $10,000, and is guaranteed byLessee Co. Show that the lease is a financing lease for the lesseeand is a sales type lease for the lessorPrepare journal entries for both companies on January 1,2019, December 31, 2019, and December 31, 2024. Prepare theamortization schedule for the lease.
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