1. 2. On January 1, 2020, Ivanhoe Company leased equipment to Flynn Corporation. The following information pertains to this lease. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $2,000, while the expected residual value at the end of the lease is $6,000. Equal rental payments are due on January 1 of each year, beginning in 2020. The fair value of the equipment on January 1, 2020, is $120,000, and its cost is $90,000 4. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. 5. Ivanhoe set the annual rental to ensure a 4% rate of return. Flynn's incremental borrowing rate is 5%, and the implicit rate of the lessor is unknown. 6. Collectibility of lease payments by the lessor is probable. 3. . Both the lessor and the lessee's accounting periods end on December 31 Date Debit Credit Account Titles and Explanation Right-of-Use Asset 1/1/20 V 146702 112 Lease Liablity (To record the lease) Lease Liability 21721 1/1/20 21 Cash (To record the lease payment) 14014 12/31/20 Amortization Expense Right-of-Use Asset (To record amortization of the right-of-use asset) 7541 12/31/20 Interest Expense Losse Llability (To record interest expense)