E21-19 (LO3,4) (Accounting for an Operating Lease) Kaluzniak Corporation leased equipment to Moeller, Inc. on January 1, 2017. The lease agreement called for annual rental payments of $1,137 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 $7,000, a book value of $5,000, and Kaluzniak expects a residual value of $4,500 at the end of the lease term. Kaluzniak set the lease payments with the intent of earning a 6% return, though Moeller is unaware of the rate implicit in the lease and has an incremental borrowing rate of 8%. 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 Instructions (a) Describe the nature of the lease to both Kaluzniak and Moeller (b) Prepare all necessary j (c) How would the measurement of the lease liability and right-of-use asset be affected if, as a result of the lease contract, ournal entries for Moeller in 2017. Moeller was also required to pay $500 in commissions, prepay $750 in addition to the first rental payment, and pay $200 of insurance each vear? (d) Suppose, instead of a 3-year lease term, Moeller and Kaluzniak agree to a one-year lease with a payment of $1,137 at the start of the lease. Prepare all necessary journal entries for Moeller in 2017