On 12/21/2018, Lagor Industries (lessor) leased equipment to Lee Co. (lease) for a 5-year period under a non-cancelable agreement, after which the leased asset will revert back to Lagor Industries. The equipment costs Lagor industries $260,000 and normally sells for $376,195 Equal payments under the lease are $85,000 and are due on December 31 of each year, with the first payment made on 12/31/2018. The equipment has a useful life of 6 years The equipments residual value is $40,000 at the end of the lease term The rate implicit in the lease used by the lessor is 8%, Lee Co.s incremental borrowing rate is 10% and lessee is aware of lessors rate.

1. What is the interest revenue that Largor would report for this lease in its 2019 income statement?

2. What amount would Lee record for the right-of-use asset at inception of the agreement?

3. What amount would be Lees amortization per year?

4. Assume that the equipments residual value is not guaranteed by Lee Co. The asset was appraised at $25,000 at the end of the lease term. Which of the following journal entries would Largor record for return of the equipment at the end of the lease term?