Indigo Corporation leased equipment to Teal Mountain, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,189 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 $9,100, a book value of $7,100, and Indigo expects a residual value of $6,600 at the end of the lease term. Indigo set the lease payments with the intent of earning a 5% return, though Teal Mountain 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.

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

RENTAL PAYMENTS $______________

DATE	ACCOUNT TITLES AND EXPLANATION	DEBIT	CREDIT
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?	?	?	?
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	(to record the recognition of the revenue)
?	?	?	?
	?	?	?
	(to record depreciation expense on the leased equipment)

How would Indigos accounting in part a change if it incurred legal fees of $600 to execute the lease documents and $300 in advertising expenses for the year in connection with the lease? (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
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