Cullumber Leasing Company agrees to lease equipment to Riverbed Corporation on January 1, 2025. The following information relates to the lease agreement. 1. 2. 3. 4. 5. 6. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. The cost of the machinery is $473,000, and the fair value of the asset on January 1, 2025, is $746,000. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $50,000. Riverbed estimates that the expected residual value at the end of the lease term will be $50,000. Riverbed amortizes all of its leased equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2025. The collectibility of the lease payments is probable. Cullumber desires a 10% rate of return on its investments. Riverbed's incremental borrowing rate is 11%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31.) Click here to view factor tables. Discuss the nature of this lease for both the lessee and the lessor. This is a finance lease for Riverbed. This is a sales-type lease for Cullumber (b) eTextbook and Media List of Accounts Attempts: 2 of 5 used Your answer is correct. Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, eg 1.25124 and the final answer to O decimal places eg. 58,972.) Annual rental payment 134511 Your answer is correct. Compute the value of the lease liability to the lessee. (Round present value factor calculations to 5 decimal places, eg. 1.25124 and the final answer to O decimal places e.g. 58,972.) Present value of minimum lease payments 703565 (d) eTextbook and Media List of Accounts Attempts: 1 of 5 used Your answer is partially correct. Prepare the journal entries Riverbed would make in 2025 and 2026 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 Dundancwere to decimal places e.a. 58.972. Record journal entries in the order presented in the problem. List Prepare the journal entries Riverbed would make in 2025 and 2026 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 O for the amounts. Round answers to O decimal places eg. 58,972. Record journal entries in the order presented in the problem. List all debit entries before credit entries) Date Account Titles and Explanation 1/1/25 Leased Equipment 1/1/25 12/31/25 Lease Liability (To record the lease.) Lease Liability Lease Revenue (To record lease payment.) Depreciation Expense Accumulated Depreciation-Leased Equipment (To record amortization.). Debit 473000 703565 Credit 473 703 (To record amortization.) (To record interest.) (To record amortization.) (To record interest.)