Krause Company on January 1, 2018, enters into a ten-year non-cancelable lease for equipment having an estimated useful life of 12 years and a fair value to the lessor, Daly Corp, at the inception of the lease of S3,000,000. The cost of the equipment to Daly Corp is $2,500,000. Krause's incremental borrowing rate is 8%. Daly Corp requires a 10% rate of return on similar leases, and this rate is not known by Krause Company. Krause uses the straight-line method to depreciate its assets. The lease contains the following 1 Rental payments are made at the beginning of cach year, with the first payment made on January1, 2018. Krause incurred S9,000 of initial direct costs to secure the lease (credit Cash where appropriate). Krause Company has guaranteed Daly Corp. that the asset will have a residual value of $150,000 at the end of the lease term. However, Krause believes that the asset will have an actual residual value of $120,000. 2. 3. 4. This lease is appropriately classified as a finance lease for Krause and a sales-type lease for Daly PV Annuity Due 7.24689 PV Ordinary Annuity 6.71008 (d) Prepare the joumal entries for Daly Corp. on January 1, 2018. (Please show work for potential 8%, 10 periods 10%, 10 periods 46319 38554 partial crdit) 6.75902 6.14457 (a) Calculate the amount of the annual payment for the lease. For e) assume that the amount caleulated in a) is $410,000 (not the correct (e) Prepare the journal entries for Daly Corp. on December 31,2018. (Please show work for potential partial credit.) (b) Prepare the joumal entries for Krause Company on January 1,2018. (Please show work for potential partial credit.) (Cont. on next page) (c) Prepare the joumal entries for Krause Company on December 31, 2018. (Please show work for potential partial credit.)