E. Prepare the journal entries Novak would make in 2020 and 2021 related to the lease arrangement.

Problem 21-06 (Part Level Submission) Novak Leasing Company agrees to lease equipment to Splish 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 $517,000, and the fair value of the asset on January 1, 2020, is $657,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $55,000. Splish estimates that the expected residual value at the end of the lease term will be 55,000. Splish 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. Novak desires a 10% rate of return on its investments. Splish'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. Your answer is correct. Discuss the nature of this lease for both the lessee and the lessor. This is a T finance lease for Solish. This is a T sales-type lease sales-type for Novak. SHOW LIST OF ACCOUNTS SHOW SOLUTION LINK TO TEXT LINK TO TEXT (b) 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 117413 SHOW LIST OF ACCOUNTS SHOW SOLUTION LINK TO TEXT LINK TO TEXT Attempts: 2 of 5 used Your answer is correct. 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 614133 SHOW LIST OF ACCOUNTS SHOW SOLUTION (To record amortization.) Tinterest Expense 54931 Interest Payable 54931 (To record interest.) 1/1/21 Lease Liabi 117413 Cash 117413 12/31/21 Depreciation Expense 80162 T Accumulated Depreciati 80162 (To record amortization.) TInterest Expense 48058 Interest Payable 48058 (To record interest.) (d) Your answer is partially correct. Try again. Prepare the journal entries Splish 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 o for the amounts. Round answers to o decimal places e.g. 58,972. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit 11/1/20 JT Lease Receivable 614133 T Lease Liability (To record the lease.) TLease Liability 117413 T Cash (To record lease payment.) 112/31/20 = TDepreciation Expense 80162 X Accumulated Depreciati 80162 (To record amortization.) Interest Expense 54931 T Interest Payable 54931 (To record interest.)