Exercise 21-10 The following facts pertain to a non-cancelable lease agreement between Sandhill Leasing Company and Teal Mountain Company, a lessee. Commencement date Annual lease payment due at the beginning of each year, beginning with May 1, 2020 Bargain purchase option price at end of lease term Lease term Economic life of leased equipment May 1, 2020 $15,349.90 $6,000 5 years 10 years Lessor's cost Fair value of asset at May 1, 2020 Lessor's implicit rate Lessee's incremental borrowing rate $65,000 $76,000 The collectibility of the lease payments by Sandhill is probable. 4 % 4 % Prepare the journal entries on the lessee's books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2020 and 2021. Teal Mountain's annual accounting period ends on December 31. Reversing entries are used by Teal Mountain. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.15. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation 5/1/20 5/1/20 Leased Equipment Lease Liability (To record the lease) Lease Liability 12/31/20 12/31/20 Cash (To record the first lease payment) Interest Expense Interest Payable (To record interest expense) Depreciation Expense Accumulated Depreciation- (To record amortization of the right-of-use asset) Debit Credit 1/1/21 Lease Liability Interest Expense 5/1/21 Interest Expense Lease Liability Cash 12/31/21 Interest Expense Lease Liability 12/31/21 (To record interest expense) Depreciation Expense Accumulated Depreciation- (To record amortization of the right-of-use asset)