Exercise 21-12 (Part Level Submission) On January 1, 2020, Crane Company leased equipment to Flynn Corporation. The following information pertains to this lease. 1. 2. 3. 4. 5. 6. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $3,000, while the expected residual value at the end of the lease is $5,000. Equal rental payments are due on January 1 of each year, beginning in 2020. The fair value of the equipment on January 1, 2020, is $150,000, and its cost is $120,000. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. Crane set the annual rental to ensure a 6% rate of return. Flynn's incremental borrowing rate is 5%, and the implicit rate of the lessor is unknown. Collectibility of lease payments by the lessor is probable. Both the lessor and the lessee's accounting periods end on December 31. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) (a) Your answer is correct. Discuss the nature of this lease to Crane and Flynn. sales-type lease. The nature of this lease for Crane is a The nature of this lease for Flynn is a finance lease. SHOW LIST OF ACCOUNTS SHOW SOLUTION LINK TO TEXT LINK TO TEXT LINK TO VIDEO Calculate the amount of the annual rental payment. (Round answer to 0 decimal places, e.g. 5,275.) Annual rental payment 28372 SHOW LIST OF ACCOUNTS SHOW SOLUTION LINK TO TEXT LINK TO TEXT LINK TO VIDEO Attempts: 2 of 5 used (c) Your answer is partially correct. Try again. Prepare all the necessary journal entries for Crane for 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 1/1/20 Lease Receivable 150000 Cost of Goods Sold 120000 Sales Revenue 150000 120000 Inventory (To record the lease) M 1/1/20 Cash 28372 28372 Lease Receivable (To record lease payment) | 12/31/20 cash 7298 Interest Revenue 7298 (d) Suppose the collectibility of the lease payments was not probable for Crane. Prepare the necessary journal entry for the company 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 SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO VIDEO