Chapter 18, Problem 18.18E

Operating Lease, Lessor. True Image Copier Company leases a multifunction copier to Fabach Incorporated The lease term is 4 years with no renewal options, the economic life of the copier is 7 years The fair value of the copier is $14,000, and True Image Company's equipment carrying value is also $14,000 The residual value expected at the end of the lease term is $5,000 and is not guaranteed There are no lease incentives and no initial direct costs paid by either party to the lease Fabach can acquire title to the copier by paying fair value at the end of the lease term The lease calls for monthly payments of $200 due on the first day of each month Fabach pays for maintenance to an independent third party The implicit rate in the lease is 5%. There is no transfer of ownership at the end of the lease term.

Required

1. a. Classify the lease for True Image Copier Company.
2. b. Provide the journal entries required over the lease term assuming that True Image prepares financial statements monthly Provide all supporting computations.