On January 1, 2011, Palmer Company leased equipment to Woods Corporation. The following information pertains to this lease. The term of the noncancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease. Equal rental payments are due on January 1 of each year, beginning in 2011. The fair value of the equipment on January 1, 2011, is $200,000, and its cost is $150,000. The equipment has an economic life of 8 years, with an unguaranteed residual value of $10,000. Woods depreciates all of its equipment on a straight-line basis. Palmer set the annual rental to ensure an 11% rate of return. Woods's incremental borrowing rate is 12%, and the implicit rate of the lessor is unknown. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by the lessor. Instructions (Both the lessor and the lessee's accounting period ends on December 31.) (a) Answer the following questions. What type of lease is recorded by Palmer? Capital LeaseOperating Lease What type of lease is recorded by Woods? Capital LeaseOperating Lease (b) Calculate the amount of the annual rental payment. (Round your answer to the nearest dollar eg 58,971.) $ (c) Prepare all the necessary journal entries for Woods for 2011. (Round your answer to the nearest dollar eg 58,971.) Date Description Debit Credit 1/1/11 Leased Equipment Under Capital LeasesLease LiabilityCashDepreciation ExpenseAccumulated DepreciationInterest ExpenseInterest PayableLease ReceivableCost of Goods SoldSalesInventoryInterest ReceivableInterest RevenueEquipment $ Lease LiabilityLeased Equipment Under Capital LeasesCashDepreciation ExpenseAccumulated DepreciationInterest ExpenseInterest PayableLease ReceivableCost of Goods SoldSalesInventoryInterest ReceivableInterest RevenueEquipment $ (To record the lease) Lease LiabilityLeased Equipment Under Capital LeasesCashDepreciation ExpenseAccumulated DepreciationInterest ExpenseInterest PayableLease ReceivableCost of Goods SoldSalesInventoryInterest ReceivableInterest RevenueEquipment $ CashLeased Equipment Under Capital LeasesLease LiabilityDepreciation ExpenseAccumulated DepreciationInterest ExpenseInterest PayableLease ReceivableCost of Goods SoldSalesInventoryInterest ReceivableInterest RevenueEquipment $ (To record lease payment) 12/31/11 Depreciation ExpenseLeased Equipment Under Capital LeasesLease LiabilityCashAccumulated DepreciationInterest ExpenseInterest PayableLease ReceivableCost of Goods SoldSalesInventoryInterest ReceivableInterest RevenueEquipment $ Accumulated DepreciationLeased Equipment Under Capital LeasesLease LiabilityCashDepreciation ExpenseInterest ExpenseInterest PayableLease ReceivableCost of Goods SoldSalesInventoryInterest ReceivableInterest RevenueEquipment $ (To record depreciation) Interest ExpenseLeased Equipment Under Capital LeasesLease LiabilityCashDepreciation ExpenseAccumulated DepreciationInterest PayableLease ReceivableCost of Goods SoldSalesInventoryInterest ReceivableInterest RevenueEquipment $ Interest PayableLeased Equipment Under Capital LeasesLease LiabilityCashDepreciation ExpenseAccumulated DepreciationInterest ExpenseLease ReceivableCost of Goods SoldSalesInventoryInterest ReceivableInterest RevenueEquipment $ (To record the interest) (d) Prepare all the necessary journal entries for Palmer for 2011. (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2. Round your answer to the nearest dollar eg 58,971.) Date Description Debit Credit 1/1/11 Lease ReceivableLeased Equipment Under Capital LeasesLease LiabilityCashDepreciation ExpenseAccumulated DepreciationInterest ExpenseInterest PayableCost of Goods SoldSalesInventoryInterest ReceivableInterest RevenueEquipment $ Cost of Goods SoldLeased Equipment Under Capital LeasesLease LiabilityCashDepreciation ExpenseAccumulated DepreciationInterest ExpenseInterest PayableLease ReceivableSalesInventoryInterest ReceivableInterest RevenueEquipment $ SalesLeased Equipment Under Capital LeasesLease LiabilityCashDepreciation ExpenseAccumulated DepreciationInterest ExpenseInterest PayableLease ReceivableCost of Goods SoldInventoryInterest ReceivableInterest RevenueEquipment $ InventoryLeased Equipment Under Capital LeasesLease LiabilityCashDepreciation ExpenseAccumulated DepreciationInterest ExpenseInterest PayableLease ReceivableCost of Goods SoldSalesInterest ReceivableInterest RevenueEquipment $ (To record the lease) CashLeased Equipment Under Capital LeasesLease LiabilityDepreciation ExpenseAccumulated DepreciationInterest ExpenseInterest PayableLease ReceivableCost of Goods SoldSalesInventoryInterest ReceivableInterest RevenueEquipment $ Lease ReceivableLeased Equipment Under Capital LeasesLease LiabilityCashDepreciation ExpenseAccumulated DepreciationInterest ExpenseInterest PayableCost of Goods SoldSalesInventoryInterest ReceivableInterest RevenueEquipment $ (To record lease payment) 12/31/11 Interest ReceivableLeased Equipment Under Capital LeasesLease LiabilityCashDepreciation ExpenseAccumulated DepreciationInterest ExpenseInterest PayableLease ReceivableCost of Goods SoldSalesInventoryInterest RevenueEquipment $ Interest RevenueLeased Equipment Under Capital LeasesLease LiabilityCashDepreciation ExpenseAccumulated DepreciationInterest ExpenseInterest PayableLease ReceivableCost of Goods SoldSalesInventoryInterest ReceivableEquipment $ (To record the interest) Click here if you would like to Show Work for this question