Cheyenne Corporation leased equipment to Sage Hill, Inc. on January 1, 2017. The lease agreement called for annual rental payments of $1,250 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $8,000, a book value of $6,000, and Cheyenne expects a residual value of $5,500 at the end of the lease term. Cheyenne set the lease payments with the intent of earning a 7% return, though Sage Hill is unaware of the rate implicit in the lease and has an incremental borrowing rate of 9%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature.

Prepare all necessary journal entries for Sage Hill in 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.) Debit Credit Date Account Titles and Explanation 1/1/17 (To record the lease) 1/1/17 (To record lease liability) 12/31/17 SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT How would the measurement of the lease liability and right-of-use asset be affected if, as a result of the lease contract, Sage Hill was also required to pay $600 in commissions, prepay $800 in addition to the first rental payment, and pay $150 of insurance each year? (Round answers to O decimal places, e.g. 5,275.) Lease liability Right-of-use-assette SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT Suppose, instead of a 3-year lease term, Sage Hill and Cheyenne agree to a one-year lease with a payment of $1,250 at the start of the lease. Prepare necessary journal entry for Sage Hill in 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 1/1/17 Click if you would like to Show Work for this question: Open Show Work