Question

Blue Corporation leased equipment to Larkspur, Inc. on January 1, 2017. The lease agreement called for annual rental payments of $1,141 at the beginning of each year of the 4-year lease. The equipment has an economic useful life of 8 years, a fair value of $9,400, a book value of $7,400, and Blue expects a residual value of $6,900 at the end of the lease term. Blue set the lease payments with the intent of earning a 7% return, though Larkspur is unaware of the rate implicit in the lease and has an incremental borrowing rate of 9%. 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.

What is the amount of the rental payments used in the lease agreement? (Round answer to 0 decimal places, e.g. 5,275.)

Prepare the entries for Blue for 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.)

Answer 1