Novak Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $55,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 6%; Novaks incremental borrowing rate is 8%. Novak is unaware of the rate being used by the lessor. At the end of the lease, Novak has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Novak uses the straight-line method of depreciation on similar owned equipment.

Given correct entries: Dec 31,2020 journal entries

Dec 31,2021 entries

1) Prepare the journal entries, that Novak should record on December 31, 2022?

2) What amounts would appear on Novaks December 31, 2022, balance sheet relative to the lease arrangement?

Prepare the journal entries, that Novak should record on December 31, 2020. (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 O for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places, e.g. 58,971.) Date Account Titles and Explanation Debit Credit December 31, 2020 Right-of-Use Asset 240,570 Lease Liability 240,570 (To record leased asset and related liability.) Lease Liability 55,000 Cash 55,000 (To record the first rental payment.) Date Account Titles and Explanation Debit Credit December 31, 2021 Amortization Expense 34367 Right-of-Use Asset 34367 (To record amortization.) Interest Expense 14846 Lease Liability 40154 Cash 55000 (To record annual payment on lease liability.) Prepare the journal entries, that Novak should record on December 31, 2022. (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 for the amounts. Round answers to 0 decimal places e.g. 58,971.) Date Account Titles and Explanation Debit Credit December 31, 2022 Amortization Expense Right-of-Use Asset (To record annual amortization on leased assets.) Interest Expense Lease Liability Cash 55000 (To record annual payment on lease liability.) What amounts would appear on Novak's December 31, 2022, balance sheet relative to the lease arrangement? (Round answers to O decimal places, e.g. 58,971.) NOVAK STEEL COMPANY Balance Sheet December 31, 2022 Assets Non-current Assets Right-of-Use Asset $ $ Liabilities Current Liabilities Lease Liability $ Long-term Liabilities Lease Liability $