B) Calculate the amount of the annual rental payment required.

C) Prepare the journal entries Cullumber would make in 2020 & 2021

Cullumber Co. leases equipment to Riverbed Inc. on January 1, 2020. The following information relates to the lease agreement. 1. 2. 3. The term of the lease is 5 years with no renewal option, and the machinery has an estimated economic life of 6 years. The cost of the machinery is $785,000, and the fair value of the asset on January 1, 2020, is $1,180,000. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $68,000. Riverbed depreciates all of its equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor. Cullumber desires a 9% rate of return on its investments. Riverbed's incremental borrowing rate is 12%. Cullumber's implicit rate is unknown to Riverbed. 4. 5. 6. Assume the accounting period ends on December 31. (a) Determine the nature of this lease for both the lessee and the lessor. Cullumber Company Riverbed Company Cullumber Co. leases equipment to Riverbed Inc. on January 1, 2020. The following information relates to the lease agreement. 1. 2. 3. The term of the lease is 5 years with no renewal option, and the machinery has an estimated economic life of 6 years. The cost of the machinery is $785,000, and the fair value of the asset on January 1, 2020, is $1,180,000. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $68,000. Riverbed depreciates all of its equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor. Cullumber desires a 9% rate of return on its investments. Riverbed's incremental borrowing rate is 12%. Cullumber's implicit rate is unknown to Riverbed. 4. 5. 6. Assume the accounting period ends on December 31. (a) Determine the nature of this lease for both the lessee and the lessor. Cullumber Company Riverbed Company