Jakarta State Polytechnic

• ACCOUNTING 125

Rauch AG leases a piece of equipment to Donahue SA on January 1, 2022. The lease agreement called 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, and a book value of €20,000. Both parties expect a residual value of €8,250 at the end of the lease term, though this amount is not guaranteed. Rauch set the lease payments with the intent of earning a 5% return, and Donahue 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. Instructions a. Prepare the lease amortization schedule(s) for Donahue for all 4 years of the lease. b. Prepare the journal entries for Donahue for 2022 and 2023. c. Suppose Donahue incurs initial direct costs of €750 related to the lease. Prepare the journal entries for 20