Exercise 21A-20 a-c

Bramble Corporation leased equipment to Marin, Inc. on January 1, 2017. The lease agreement called for annual rental payments of $1,103 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 $7,300, a book value of $5,300, and Bramble expects a residual value of $4,800 at the end of the lease term. Bramble set the lease payments with the intent of earning a 5% return, though Marin is unaware of the rate implicit in the lease and has an incremental borrowing rate of 7%. 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.

a.What is the amount of the rental payments used in the lease agreement?(Round answer to 0 decimal places, e.g. 5,275.)

b.Prepare the entries for Bramble for 2017.

1.1.2017

12.31.2017 ( To Record the recognition of revenue)

12.31.2017 ( To Record the depreciation expense on the leased equipment)

c.How would Bramble's accounting in part (a) change if it incurred legal fees of $500 to execute the lease documents and $500 in advertising expenses for the year in connection with the lease?

1.1.2017

Over the course of the year

12.31.2017