Pike Incorporated leases a piece of equipment to Rose Inc. on January 1, 2017. The...
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Pike Incorporated leases a piece of equipment to Rose Inc. on January 1, 2017. The non-cancelable lease agreement calls for annual rental payments of $4,892 at the beginning of each year of the 4-year lease. The equipment has an economic useful life of 6 years, a fair value of $25,000, a book value of $20,000 and both parties expect a residual value of $8,250 at the end of the lease term, though this amount is not guaranteed. Pike sets the lease payments with the intent of earnings a 5% return, and Rose is aware of this rate. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature.
Describe the nature of the lease to both Pike and Rose.
Prepare the lease amortization schedule(s) for Rose for all 4 years of the lease.
Prepare the journal entries for Rose for 2017
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