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Martinez Corporation enters into a 7-year lease of equipment on December 31, 2019, which requires 7 annual payments of $38,200 each, beginning December 31, 2019.

Martinez Corporation enters into a 7-year lease of equipment on December  31, 2019, which requires 7 annual payments of $38,200 each, beginning December 31, 2019. In addition, Martinez guarantees the lessor a residual value of $18,500 at the end of the lease. However, Martinez believes it is probable that the expected residual value at the end of the lease term will be $9,250. The equipment has a useful life of 7 years.


Prepare Martinezs' December 31, 2019, journal entries assuming the implicit rate of the lease is 11% and this is known to Martinez.


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