Larkspur Company, a risky start-up, is evaluating a lease arrangement being offered by TSP Company for use of a standard computer system. The lease is non-cancelable, and in no case does Larkspur receive title to the computers during or at the end of the lease term. The lease starts on January 1, 2020, with the first rental payment due on January 1, 2020. Additional information related to the lease and the underlying leased asset is as follows.

Yearly rental		$2,629.25
Lease term		3 years
Estimated economic life		5 years
Purchase option		$2,580 at end of 3 years, which approximates fair value
Renewal option		1 year at $1,290; no penalty for nonrenewal; standard renewal clause
Fair value at commencement		$8,600
Cost of asset to lessor		$8,600
Residual value:
Guaranteed		0
Unguaranteed		$2,580
Lessors implicit rate (known by the lessee)		10%
Estimated fair value at end of lease		$2,580

(a)

Analyze the lease capitalization tests for this lease for Larkspur. Prepare the journal entries for Larkspur for 2020.