On January 1, 2016, Jimmy Corporation signed a 6-year, non-cancelable lease for a machine. The terms of the lease called for JImmy to make annual payments of $12,018 at the beginning of each year, starting January 1, 2016, The machine has an estimated useful life of 8 years and a $6,000 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Jimmy uses the straight-line method of depreciation for all of its plant assets. Jimmy's incremental borrowing rate is 8%, and the lessor's implicit rate is unknown.

Instructions

(Round all numbers to the nearest dollar.)

(a) What type of lease is this? Explain.

(b) Compute the present value of the lease payments.

(c) What are the necessary journal entries for Jimmy for this lease through January 1, 2017.

(d) What are the necessary journal entries for the lessor through January 1, 2017.