ABC Corp. is a manufacturer of tractors. On January 1, 2021, ABC Corp. leases ten tractors to Sunder Farms under a six-year noncancelable lease agreement. The following information about the lease and the trailers is provided:

1. Equal annual payments that are due on January 1 each year provide ABC Corp. with an 9% return on net investment. The implicit rate is known to Sunder.

2. The lease has a guaranteed residual value of $ 5000 per tractor at the end of the lease. It is expected that the residual value will be $ 5000 or more.

3. The fair value of each tractor is $61,000. The cost of each tractor to ABC Corp. is $54,000. Each tractor has an expected useful life of nine years.

4. Collectability of the lease payments is probable.

Instructions (Make sure you answer all the parts to this question)

(a) Calculate the annual lease payment. (Round to nearest dollar.)

(b) What type of lease is this for the lessor? Discuss.

(c) Prepare a lease amortization schedule for ABC Corp. for the first three years.

(d) Prepare the journal entries for the lessor for 2021 to record the lease agreement, the receipt of the lease rentals, and the recognition of revenue (assume the use of a perpetual inventory method and round all amounts to the nearest dollar).

(e) How would the entries at the inception of the lease on January 1, 2021 change if the collectability of the lease payments is not assured?

(f) How would the initial journal entry to recognize the inception of the lease contract change if the residual value was unguaranteed?

(g) Prepare the initial journal entry to recognize the lease contract for the lessee on 1/1/21. How would this entry change if (i) the expected residual value is $ 1000 only and (ii) the lessee had to pay $ 1000 each year as insurance costs to the lessor?