Carla Corporation (Carla) manufactures equipment with an estimated economic life of 13 years. On May 30, 2020, Carla leases it to Gadget Corporation (Gadget) for a period of 10 years. Assume both companies follow ASPE. Details of the lease are as follows:

Equipment has a fair value and cost at the inception of the lease: $233,755

Guaranteed residual value: $28,000

Annual lease payment, due at beginning of each year: $34,250

Lease contains no renewal options and the equipment reverts to Carla at the end of the lease

Gadgets incremental interest rate, as well as implicit rate is 11%

Gadget uses straight-line amortization for similar equipment that it owns

Carla has determined that collectibility of lease payments is reasonably predictable and that no additional costs will be incurred

Prepare the journal entries for the lessee and lessor at May 30, 2020, and at December 31, 2020, which is the year end for both the lessee and lessor.

Date	Account Titles and Explanation	Debit	Credit
May 30, 2020Dec. 31, 2020
	(To record inception of lease.)
	(To record lease payment.)
May 30, 2020Dec. 31, 2020
	(To record interest.)

Date	Account Titles and Explanation	Debit	Credit
May 30, 2020Dec. 31, 2020
	(To record inception of lease.)
	(To record collection of lease payment.)
May 30, 2020Dec. 31, 2020

Prepare journal entries at May 30, 2021 for the lessee and lessor. Assume reversing entries are not used

Date	Account Titles and Explanation	Debit	Credit
May 30, 2021

Date	Account Titles and Explanation	Debit	Credit
May 30, 2021
	(To record interest.)