Lorax Corporation (lessor) leased an airplane to Dorax Company (lessee) on 1/1/20 on a six-year noncancellable lease. Annual payments of $292,000 are to be made each January 1st.
The airplane has an estimated fair value of $1,750,000 and cost Lorax $1,200,000. It has a useful life of eight years, and an estimated $200,000 residual value at the end of the lease, which Dorax has
has not guaranteed. Lorax uses a rate of 4% in setting the lease payments. Prepare the journal entries that Lorax will make in 2020.