5) On January 1, 20X1, Gyzmo Company leased equipment to Gremlin Corporation. The following information pertains to this lease. 1. The term of the non-cancelable lease is 8 years. At the end of the lease term, Gremlin has the option to purchase the equipment for $5,000, while the expected residual value at the end of the lease is $5,000. 2. Equal rental payments are due on January 1 of each year, beginning in 20X1. 3. The fair value of the equipment on January 1, 20X1, is $100,000, and its cost is $75,000. 4. The equipment has an economic life of 10 years. Gyzmo and Gremlin depreciate all of their equipment on a straight-line basis. 5. Gyzmo sets the annual rental to ensure a 5% rate of return. Gremlin's incremental borrowing rate is 6%, and the implicit rate of the lessor is known. 6. Collectability of lease payments by the lessor is probable. Instructions (Both the lessor and the lessee's accounting periods end on December 31.) Discuss the nature of this lease to Gyzmo and Gremlin. Calculate the amount of the annual rental payment. Prepare all the necessary journal entries for Gyzmo for 20X1. Prepare all the necessary journal entries for Gyzmo for 20x2. Suppose the collectibility of the lease payments was not probable for Gyzmo. Prepare all necessary journal entries for the company in 20X1. Prepare all the necessary journal entries for Gremlin for 20X1. Prepare all the necessary journal entries for Gremlin for 20X2 (h) Discuss the effect on the journal entry for Gremlin at lease commencement, assuming initial direct costs of $5,000 are incurred by Gremlin to negotiate the lease