ion as Finance or Operating Lease, Lessee, Lessor, Journal Entries, Direct Financing Lease, E18-22. ClLessee Initial Direct Costs, Third-Party Guaranteed Residual Value. Plash Photo Com leased a digital reproduction machine on January 1, 2019. The following information was obtained pan from the lease contract: es a term of 5 years. There is no renewal option and there is no transfer of ownership. The rental payments of $120,000 per year are due each January 1 with the first payment due at lease commencement. value of the equipment on the date the lease is signed is $650,000. The equipment has an economic rs. The lessor paid fair value to acquire the asset. On January 1, 2019, the carrying value is life of 8 year $650,000. There is a guarant value is the end of the lease term. Plash Photo depre uaranteed residual value of $100,000 provided by a third party. This guaranteed residual equal to the expected residual value so that there is no unguaranteed residual asset expected at ciates similar machinery that it owns on a straight-line basis. initial direct costs of $10,000 at the lease commencement date. . he le ssee pays Plash Photo's i . The lessor is reasonably certain regarding the collect ncremental borrowing rate is 10% per year. Plash does not know the lessor's implicit rate. tion of the lease payments, and it is probable that the lessor will collect the lease payments plus any amount necessary to satisfy a residual value gua Required a. Classify the lease for both the lessor and the lessee. Find the lessor's implicit rate. b. Prepare the journal entries for Plash Photo (the lessee) for t the first year of the lease (i.e., January 1 and December 31). Hint: To record amounts that would be shown as "interest expense" on the amortization schedule, use the account name "Accrued Lease Payable" c. Prepare the journal entries for the lessor for the first year of the lease (i.e., January 1 and December 31)