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LeBron James ( LBJ ) Corporation agrees on January 1 , 2 0 2 5 , to lease equipment from Sheridan, Inc. for 3 years.Novak

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LeBron James (LBJ) Corporation agrees on January 1,2025, to lease equipment from Sheridan, Inc. for 3 years.Novak Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31,
Annual rental payments of $44,000 are to be made at the beginning of each lease year (December 31).
The interest rate used by the lessor in setting the payment schedule is 6%; Novak's incremental borrowing rate
is 8%. Novak is unaware of the rate being used by the lessor. At the end of the lease, Novak has the option to buy
the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an
estimated useful life of 7 years, with no salvage value. Novak uses the straight-line method of depreciation on
similar owned equipment.
Click here to view factor tables.
The lease calls for annual lease payments of $26,000 at the beginning of each year. The lease does not transfer
ownership, nor does it contain a bargain purchase option, and is not a specialized asset. In addition, the useful life
of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the
equipment.
Prepare LBJ's journal entries on January 1,2025(commencement of the operating lease), and on December 31,
Assume the implicit rate used by the lessor is unknown, and LBJ's incremental borrowing rate is 4%.(Credit
account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required,
select "No Entry" for the account titles and enter 0 for the amounts. List all debit entries before credit entries. For
calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal
places, e.g.5,275. Record journal entries in the order presented in the problem.)
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