Bonita Corporation enters into a 5-year lease of equipment on December 31, 2016, which requires 5 annual payments of $37,600 each, beginning December 31, 2016. In addition, Bonita guarantees the lessor a residual value of $18,900 at the end of the lease. However, Bonita believes it is probable that the expected residual value at the end of the lease term will be $8,900. The equipment has a useful life of 5 years. Assume that for Lost Ark Company, the lessor, collectibility of lease payments is probable and the carrying amount of the equipment is $130,000. Prepare Lost Arks 2016 and 2017 journal entries, assuming the implicit rate of the lease is 9% and this is known to Bonita.

December 31, 2016 December 31, 2016 To record receipt of lease payment) December 31, 2017