Flounder Corporation leased equipment to Shamrock, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,276 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 $7,600, a book value of $5,600, and Flounder expects a residual value of $5,100 at the end of the lease term. Flounder set the lease payments with the intent of earning a 8% return, though Shamrock is unaware of the rate implicit in the lease and has an incremental borrowing rate of 10%. 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.

What is the amount of the rental payments used in the lease agreement?

Rental payments: $

Show the entries for Flounder for 2020.

Date Account Titles and Explanation Debit Credit

(a)

(b)

Date

(a)

(b)

(To record the recognition of the revenue)

Date

(a)

(b)

(To record depreciation expense on the leased equipment)

How would Flounder's accounting in part a change if it incurred legal fees of $900 to execute the lease documents and $600 in advertising expenses for the year in connection with the lease?

Date Account Titles and Explanation Debit Credit

(a)

(b)

Date

(a)

(b)

Date

(a)

(b)