E21.22 (LO 3, 4) (Accounting for an Operating Lease) Use the information for Rauch Incorporated and Donahue Corporation from E21.21. Instructions

a. Explain (and show calculations) how Rauch arrived at the amount of the rental payments used in the lease agreement.

b. Prepare the entries for Rauch for 2020.

c. Suppose that instead of $8,250, Rauch expects the residual value at the end of the lease to be $5,000, but Donahue agrees to guarantee a residual value of $8,250. All other facts being equal, how would Rauch change the amount of the annual rental payments, if at all?

d. Explain how a fully guaranteed residual value by Donahue would change the accounting for Rauch, the lessor.

e. Explain how a bargain renewal option for one extra year at the end of the lease term would change the accounting of the lease for Rauch, the lessor.