Ramallah Company leases heavy equipment to Terrell, Inc. on January 2, 2007 on the following terms:

1. Forty-eight lease rentals of $1,600 at the end of each month are to be paid by Terrell, Inc., and the lease is non-cancelable.

2. The cost of the heavy equipment to Ramallah Company was $60,758.

3. Ramallah Company will account for this lease using the direct financing method. The difference between total rental receipts ($1,600 × 48 = $76,800) and the cost of the equipment ($60,758) was computed to yield a return of 1% per month over the lease term.

Required

Prepare journal entries for Ramallah Company (the lessor) to record the lease contract and the receipt of the first lease rental on January 31, 2007. Record the part of the $16,042 Unearned Interest that was earned during the first month and carry calculations to the nearest dollar.