Crane Leasing Company agrees to lease equipment to Cheyenne Corporation on January 1, 2020. The following information relates to the lease agreement.

Crane Leasing Company agrees to lease equipment to Cheyenne Corporation on January 1, 2020. The following information relates to the lease agreement.

1.		The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years.
2.		The cost of the machinery is $502,000, and the fair value of the asset on January 1, 2020, is $739,000.
3.		At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $45,000. Cheyenne estimates that the expected residual value at the end of the lease term will be 45,000. Cheyenne amortizes all of its leased equipment on a straight-line basis.
4.		The lease agreement requires equal annual rental payments, beginning on January 1, 2020.
5.		The collectibility of the lease payments is probable.
6.		Crane desires a 11% rate of return on its investments. Cheyennes incremental borrowing rate is 12%, and the lessors implicit rate is unknown.

(Assume the accounting period ends on December 31.) Click here to view factor tables.

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Discuss the nature of this lease for both the lessee and the lessor. This is a

for Cheyenne. This is a

for Crane.

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Your answer is correct.

Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,972.)

Annual rental payment

$

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Compute the value of the lease liability to the lessee. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,972.)

Present value of minimum lease payments

$

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Prepare the journal entries Cheyenne would make in 2020 and 2021 related to the lease arrangement. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places e.g. 58,972. Record journal entries in the order presented in the problem.)

Date	Account Titles and Explanation	Debit	Credit

	(To record the lease.)
	(To record lease payment.)

	(To record amortization.)
	(To record interest.)

	(To record amortization.)
	(To record interest.)

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List of Accounts

Incorrect answer icon

Your answer is incorrect.

Prepare the journal entries Crane would make in 2020 and 2021 related to the lease arrangement. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places e.g. 58,972. Record journal entries in the order presented in the problem.)

Date	Account Titles and Explanation	Debit	Credit

	(To record the lease.)