Culver Corporation leased equipment to Splish Brothers, Inc. on January 1, 2025. The lease agreement called for annual rental payments of $1,147 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 $9,800, a book value of $7,800, and Martinez expects a residual value of $7,300 at the end of the lease term. Culver set the lease payments with the intent of earning a 4% return, though Tamarisk is unaware of the rate implicit in the lease and has an incremental borrowing rate of 6%. 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. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

A. Determine the nature of the lease to both Culver and Splish Brothers

The lease is a/an (operating/financing) lease to Splish Brothers.

The lease is a/an (operating/financing) lease to Culver.

B. Prepare all necessary journal entries for Splish Brothers in 2020. (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. Record journal entries in the order presented in the problem.)

Date	Account Titles and Explanation	Debit	Credit
1/1/2012/31/20
	(To record the lease)
1/1/2012/31/20
	(To record lease payment)
1/1/2012/31/20

C. How would the measurement of the lease liability and right-of-use asset be affected if, as a result of the lease contract, Splish Brothers was also required to pay $500 in commissions, prepay $750 in addition to the first rental payment, and pay $200 of insurance each year? (Round answers to 0 decimal places, e.g. 5,275.)

Lease liability		$
Right-of-use-asset		$

D. Suppose, instead of a 3-year lease term, Splish Brothers and Culver agree to a one-year lease with a payment of $1,283 at the start of the lease. Prepare necessary journal entry for Splish Brothers in 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
1/1/20