Reference no: EM132676783

Lamplighter Company, the lessor, agrees to lease equipment to Tilson Company, the lessee, beginning January 1, 2016. The lease terms, provisions, and related events are as follows:

• The lease is noncancelable and has a term of 8 years.
• The annual rentals are $32,000, payable at the end of each year.
• Tilson agrees to pay all executory costs.
• The interest rate implicit in the lease is 14%.
• The cost of the equipment to the lessor is $110,000.
• The lessor incurs no material initial direct costs.
• The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor.
• The lessor estimates that the fair value at the end of the lease term will be $20,000 and that the economic life of the equipment is 9 years.

Problem 1: Calculate the selling price implied by the lease

Problem 2: Prepare journal entries for Lamplighter for the years 2016, 2017, and 2019.

Problem 3: Prepare partial balance sheets for Lamplighter for December 31, 2016, and December 31, 2017, showing how the accounts should be disclosed.