Novak Corporation leased equipment to Windsor, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $878 at the beginning of each year of the 4-year lease. The equipment has an economic useful life of 8 years, a fair value of $8,100, a book value of $6,100, and Novak expects a residual value of $5,600 at the end of the lease term. Novak set the lease payments with the intent of earning a 4% return, though Windsor is unaware of the rate implicit in the lease and has an incremental borrowing rate of 6%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a

specialized nature. Prepare the entries for Novak for 2020:

Your answer is partially correct. Prepare the entries for Novak for 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to decimal places, eg. 5,275. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit 1/1/20 Cash 913 Unearned Lease Revenue 12/31/20 Unearned Lease Revenue 913 Lease Revenue (To record the recognition of the revenue) 12/31/20 Depreciation Expense 763 Accumulated Depreciation Equipment (To record depreciation expense on the leased equipment)