Marin Leasing Company agrees to lease equipment to Headland Corporation on January 1, 2020. The following information relates to the lease agreement.

1.		The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years.
2.		The cost of the machinery is $561,000, and the fair value of the asset on January 1, 2020, is $763,000.
3.		At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $55,000. Headland estimates that the expected residual value at the end of the lease term will be 55,000. Headland amortizes all of its leased equipment on a straight-line basis.
4.		The lease agreement requires equal annual rental payments, beginning on January 1, 2020.
5.		The collectibility of the lease payments is probable.
6.		Marin desires a 10% rate of return on its investments. Headlands incremental borrowing rate is 11%, and the lessors implicit rate is unknown.

(Assume the accounting period ends on December 31.)

Discuss the nature of this lease for both the lessee and the lessor. This is a operating leasesales-type leasefinance lease for Headland. This is a finance leaseoperating leasesales-type lease for Marin.

Prepare the journal entries Marin would make in 2020 and 2021 related to the lease arrangement. (Credit account titles are automatically indented when 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. Round answers to 0 decimal places e.g. 58,972. Record journal entries in the order presented in the problem.)

Date	Account Titles and Explanation	Debit	Credit
1/1/2012/31/201/1/2112/31/21
	(To record the lease.)
1/1/2012/31/201/1/2112/31/21
	(To record lease payment.)
1/1/2012/31/201/1/2112/31/21
1/1/2012/31/201/1/2112/31/21
1/1/2012/31/201/1/2112/31/21

Suppose Headland expects the residual value at the end of the lease term to be $45,000 but still guarantees a residual of $55,000. Compute the value of the lease liability at lease commencement.

Lease liability

$