Glaus Leasing Company agrees to lease machinery to Jensen Corporation on January 1, 2014. The following information relates to the lease agreement.

1.	The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years.
2.	The cost of the machinery is $522,000, and the fair value of the asset on January 1, 2014, is $793,000.
3.	At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $107,000. Jensen depreciates all of its equipment on a straight-line basis.
4.	The lease agreement requires equal annual rental payments, beginning on January 1, 2014.
5.	The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor.
6.	Glaus desires a 10% rate of return on its investments. Jensen?s incremental borrowing rate is 11%, and the lessor?s implicit rate is unknown.

(Assume the accounting period ends on December 31.)

1.Calculate the amount of the annual rental payment required.(Round present value factor calculations to 5 decimal places, e.g. 1.25125 and the final answer to 0 decimal places e.g. 58,971.)

2.Compute the present value of the minimum lease payments.(Round present value factor calculations to 5 decimal places, e.g. 1.25125 and the final answer to 0 decimal places e.g. 58,971.)

Prepare the journal entries Jensen would make in 2014 and 2015 related to the lease arrangement.(Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 58,971.)

Date	Account Titles and Explanation	Debit	Credit
1/1/14
(To record the lease.)
(To record lease payment.)
12/31/14
(To record depreciation.)
(To record interest.)
1/1/15
12/31/15
(To record depreciation.)
(To record interest.)

Chart of Accounts:

Accounts Payable

Accumulated Depreciation-Building

Accumulated Depreciation-Capital Leases

Accumulated Depreciation-Equipment

Accumulated Depreciation-Machinery

Airplanes

Buildings

Cash

Cost of Goods Sold

Depreciation Expense

Equipment

Executory Costs

Executory Costs Payable

Insurance Expense

Interest Expense

Interest Payable

Interest Receivable

Interest Revenue

Inventory

Land

Leased Buildings

Leased Equipment

Leased Land

Lease Liability

Lease Receivable

Loss on Capital Lease

Machinery

Maintenance and Repairs Expense

Prepaid Lease Executory Costs

Property Tax Expense

Property Tax Payable

Rent Expense

Rent Payable

Rent Receivable

Rent Revenue

Revenue from Sale-Leaseback

Salaries and Wages Expense

Sales Revenue

Selling Expenses

Trucks

Unearned Profit on Sale-Leaseback

Unearned Service Revenue