Reference no: EM132602771

Question - Millet Sales Corp., a public company, is planning to acquire new computers with a total value of $ 60,000 on January 1, 2021. They have a choice of leasing the computers for a three-year period, or purchasing them and financing the purchase by issuing a note payable. Details of the two alternative arrangements are as follows:

Lease option: Three annual lease payments of $ 22,446 due on December 31 of each year. Millet would purchase the computers at the end of the three years for $ 2.00.

Financing option: Millet would make a down payment of $ 10,000 and issue a 6%, 3-year note payable for the remaining balance, with annual blended payments of $ 18,705 required on December 31 of each year.

Instructions -

a) Is the lease arrangement an operating or finance lease? Explain your choice. Record any entry required on January 1, 2021.

b) Prepare the amortization table for the note payable. Record any entry required on January 1, 2021.