Sales –Type Lease with Bargain Purchase. (Calculator set onBEG). On January 1, 2020, James corp. leased a piece of productionequipment to Eagle Corp under an 5-year lease, with payments due atthe beginning of each year. James manufactured the equipment at acost of $750,000 and its typical sales price is $1,000,000. Theannual Lease payment was computed based on an implicit interestrate of 5%. At the end of the lease, the Lessee has an option topurchase the equipment for $75,000, which both parties consider abargain purchase option. The equipment has an estimated useful lifeof 8 years, after which no residual value is expected.

1. Calculate the amount of the lease payment that the Lessorwill charge the Lessee, after considering they will recover some oftheir investment through the bargain purchase payment at the end ofthe lease

2. Prepare an amortization schedule covering the first 3payments on this lease.

3. Prepare the Lessor’s journal entry on January 1, 2020 torecord the lease

4. Prepare the Lessee’s journal entry on December 31, 2020 torecord amortization expense on the Right of Use asset.