Annual rental payment is $137142

PV of min. lease payments is $700,989

Show all calculations, thanks

Buffalo Leasing Company agrees to lease equipment to Carla Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $502,000, and the fair value of the asset on January 1, 2020, is $739,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed to the lessor and has a quaranteed residual value of $45,000. estimates that the expected residual value at the end of the lease term will be 45,000. Carla amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 5. The collectibility of the lease payments is probable. 6. Buffalo desires a 11% rate of return on its investments. Carla's incremental borrowing rate is 12%, and the lessor's implicit rate is unknown. Prepare the journal entries Carla would make in 2020 and 2021 related to the lease arrangement. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Round answers to 0 decimal places e.g. 58,972. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit T 1/1/20 TLease Receivable 739,000 Cost of Goods Sold 502,000 (To record the lease.) Sales Revenue 739,000 Inventory 502,000 (To record lease payment.) Cash 12/31/20 9 137,142 Lease Receivable 137,142 (To record amortization.) Interest Receivable 66204 Interest Revenue 66204 (To record interest.) 11/1/21 1 Cash 7 1 37,142) 7 Lease Receivable 137,142 T 12/31/21 Amortization Expense 82111 T Right-of-Use Asset 82111 (To record amortization.) Interest Receivable Interest Revenue (To record interest.)