On December 31, 2016, Burke Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Burke to make annual payments of $8,668 at the beginning of each year, starting December 31, 2016. The machine has an estimated useful life of 6 years and a $5,000 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Burke uses the straight-line method of depreciation for all of its plant assets. Burkes incremental borrowing rate is 5%, and the lessors implicit rate is unknown.

Prepare all necessary journal entries for Burke for this lease through December 31, 2017. (Record journal entries in the order presented in the problem. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Account Titles and Explanation Debit Credit Date 12/31/16 Right-of-Use Asset 39404 Lease Liability 39404 (To record the lease) 8668 Lease Liability 12/31/16 Cash 8668 (To record first lease payment) 12/31/17 7881 X 7881 (To record amortization of the right-of-use asset) 12/31/17 Interest Expense 1537 Lease Liability 7131 Cash 8668 (To record interest expense)