Lessor Company leased equipment with an estimated economic life of 4 years to Lessee Company over a 4 -year period. Lessor paid $39,000 for the equipment, its current carrying value. The lease started on January 1 of Year 1 with the first of 4 annual payments due of $10,618. Lessor Company uses a target rate of return of 6% in all lease contracts. The present value of the lease payments over the lease term, discounted at 6% is equal to $39,000. Lessor Companys accounting periods end on December 31. The equipment reverts to Lessor Company at the end of the lease term, at which time Lessor Company estimates that the equipment will have no residual value.

Provide journal entries for Year 1 for the lessor assuming that the equipment is held in the lessors Inventory account prior to the start of the lease.

Note: Round your answers to the nearest whole dollar.

A Date Account Dr. Cr. Jan 1, Year 1

To record lease.

B Jan 1, Year 1

To record receipt of lease payment.

C Dec. 31, Year 1

To record interest