2. On January 1, 20X1, Gail's Manufacturing Corp. (GMC) leased an asset from Lease Finance Co. Pertinent details follow: Lease Fair value of the equipment is $100,000. The lease term is six years. The economic life of the equipment is eight years. The lease does not contain an explicit transfer of title. Lease Finance Co.'s required rate of return for transactions of this nature is 7%. GMC is aware of this fact. I GMC will make annual fixed payments of $19,582, with the first payment due on December 31, 20X1. I GMC depreciates similar assets on a straight-line basis. The residual value at the end of the asset's useful life is $5,000. GMC has a December 31 year end. Scenario 1: There is a BPO of $10,000 at the end of the lease term. The equipment's estimated value at that time is $20,000. Scenario 2: There is a guaranteed residual value of $10,000 at the end of the lease term, and $7,000 is expected to be payable by the lessee under the residual value guarantee. Scenario 3: There is an unguaranteed residual value of $10,000 at the end of the lease term. Required: For each of the three scenarios, prepare the journal entries for GMC at the commencement date of the lease (January 1, 20X1) and year end (December 31, 20X1). 2. On January 1, 20X1, Gail's Manufacturing Corp. (GMC) leased an asset from Lease Finance Co. Pertinent details follow: Lease Fair value of the equipment is $100,000. The lease term is six years. The economic life of the equipment is eight years. The lease does not contain an explicit transfer of title. Lease Finance Co.'s required rate of return for transactions of this nature is 7%. GMC is aware of this fact. I GMC will make annual fixed payments of $19,582, with the first payment due on December 31, 20X1. I GMC depreciates similar assets on a straight-line basis. The residual value at the end of the asset's useful life is $5,000. GMC has a December 31 year end. Scenario 1: There is a BPO of $10,000 at the end of the lease term. The equipment's estimated value at that time is $20,000. Scenario 2: There is a guaranteed residual value of $10,000 at the end of the lease term, and $7,000 is expected to be payable by the lessee under the residual value guarantee. Scenario 3: There is an unguaranteed residual value of $10,000 at the end of the lease term. Required: For each of the three scenarios, prepare the journal entries for GMC at the commencement date of the lease (January 1, 20X1) and year end (December 31, 20X1)