Jensen Machinery Company manufactures and sells or leases various types of farming equipment. On 1/1/23, Jensen leased a large plowing system to O'Brien Farms. Data relating to the lease follow:

Cost of equipment to Jensen $112,000

Fair market value of equipment at 1/1/23 $142,500

Useful life of equipment 8 years

Lease term 5 years

Residual value at the end of the lease (guaranteed by O'Brien) $18,000

Residual value expected by O'Brien $13,500

Implicit and incremental interest rates 8%

Initial direct costs incurred by O'Brien in negotiation $3,000

Both the lessor and lessee use straight-line depreciation and have accounting periods that end on 12/31.

Required: a. Calculate the yearly payment that Jensen will charge O'Brien under this lease agreement if payments are made on 1/1 of each year, beginning 1/1/23.

b. Construct the lease amortization table and prepare all journal entries that would be made by Jensen (lessor) during 2023 and 2024 relating to this lease.

c. Construct the lease amortization table and prepare all journal entries that would be made by O'Brien (lessee) during 2023 and 2024 relating to this lease.

d. Prepare the journal entries made by both Jensen and O'Brien with respect to the lease termination if the actual residual value of the computer equipment is $15,000