Reference no: EM132280402

Question - Oriole Limited has signed a lease agreement with Lantus Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Lantus of $204,000. The terms of the lease are as follows:

The lease term begins on January 1, 2016, and runs for 5 years.

The lease requires payments of $49,775 at the beginning of each year starting January 1, 2016 which includes $4,900 for maintenance and insurance costs.

At the end of the lease term, the equipment is to be returned to the lessor.

Lantus' implied interest rate is 5%, while Oriole's borrowing rate is 6%. Oriole uses straight-line depreciation for similar equipment. The year-end for both companies is December 31.

Assume that both companies follow ASPE.

Prepare Oriole's lease amortization schedule using the effective interest method.