Cantwell Inc. manufactures equipment that is sold or leased. On January 1, 2023, Cantwell Inc. leased equipment with a useful life of six years to Jarden Corp. for a five-year period. Equipment costs Cantwell Inc. $100,000 and its estimated value the end of the lease period is $10,000 which is not guaranteed by lessee. Fair market value of the equipment is $126,795. Equal annual payments under the lease are $30,000 (including maintenance costs of $2,000). Cantwell Inc. incurred initial direct costs of $6,000 related to this lease. Annual lease payments are due Januar1, 2023 and each Dec, 31, 2023-26. Implicit rate on the lease is 12%. Assume that the lease qualifies as a sales-type lease for Cantwell Inc.

1.Assume that carrying value of the lease receivable at the beginning of the fifth year of lease (1-1-2027) is $8,929 and the fair market value of the leased equipment at the end of the lease term (12-31-2027) is $7,500. Prepare the journal entry that would be recorded by Cantwell Inc. (lessor) at 12-31-2027 for the receipt of the leased equipment form the lessee.