Exercise 21-7 (Part Level Submission) On January 1, 2017, Larkspur Company leased equipment to Cullumber Corporation. The following information pertains to this lease. 1. The term of the noncancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease. 2. Equal rental payments are due on January 1 of each year, beginning in 2017. 3. The fair value of the equipment on January 1, 2017, is $153,000, and its cost is $122,400. 4. The equipment has an economic life of 8 years, with an unguaranteed residual value of $10,000. Cullumber depreciates all of its equipment on a straight-line basis. 5. Larkspur set the annual rental to ensure an 10% rate of return. Cullumber's incremental borrowing rate is 11%, and the implicit rate of the lessor is unknown. 6. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by the lessor. (Both the lessor and the lessee's accounting period ends on Decen Click here to view factor tables (b) Your answer is incorrect. Try again. edugen.wileyplus.com Answer Exercise 21-7 (Part Level Submission) CLOSE Calculate the amount of the annual rental payment. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) Calculate the amount of the annual rental payment. (Round pres decimal places e.g. 58,971.) The amount of the annual rental payment The amount of the annual rental payment 33835 30,758 Click if you would like to Show Work for this question: Ope Copyright 2000-2020 by John Wiley & Sons, Inc. or related companies. All rights reserved. SHOW LIST OF ACCOUNTS SHOW SOLUTION SHOW ANSWER LINK TO TEXT (c) Your answer is correct. Prepare all the necessary journal entries for Cullumber for 2017. (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 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) Date 1/1/17 Account Titles and Explanation Leased Equipment Lease Liability (To record the lease.) Lease Liability Cash (To record lease payment.) 12/31/17 Depreciation Expense Accumulated Depreciation-Capital Leases (To record depreciation.) Interest Expense Interest Payable (To record interest.) Debit Credit 144436 30758 24073 12505 144436 30758 24073 12505 (d) Prepare all the necessary journal entries for Larkspur for 2017. (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 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971.) Date Account Titles and Explanation 1/1/17 12/31/17 (To record the lease.) (To record lease payment.) (To record interest.) Debit Credit