On January 1, 2017, Carla Vista Company leased equipment to Flynn Corporation. The following information pertains to this lease: 1. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $3,000, while the expected residual value at the end of the lease is $8,000. 2 Equal rental payments are due on January 1 of each year, beginning in 2017 3. The fair value of the equipment on January 1, 2017, is $150,000, and its cost is $120,000. 4. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. 5. Carla Vista set the annual rental to ensure a 5% rate of return. Flynn's incremental borrowing rate is 6%, and the implicit rate of the lessor is unknown. 6. Collectibility of lease payments by the lessor is probable Both the lessor and the lessee's accounting periods end on December 31 Click here to view the factor table (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Discuss the nature of this lease to Carla Vista and Flynn. # lease The nature of this lease for Carla Vista is a The nature of this lease for Flynn is a Calculate the amount of the annual rental payment. (Round answer to 0 decimal places, e.g.5,275.) Annual rental payment Prepare all the necessary journal entries for Carla Vista for 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g lease. 5,275.) Date Account Titles and Explanation Debit Credit To record the lease) To record lease payment) 12/31/17 Suppose the collectibility of the lease payments was not probable for Carla Vista. Prepare the necessary journal entry for the company in 2017, (Credit account titles are automatically indented when the amount is Account Titles and Explanation Date Debit Credit Prepare all the necessary journal entries for Flynn for 2017, (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,275.) Credit Date Account Titles and Explanation Debit To record the lease) To record the receipt of lease payment) 12/31/17 To record amortization of the right-of-use asset) (To record interest expense) Prepare the effect on the journal entry for Flynn at lease commencement, assuming initial direct costs of $2,000 are incurred by Flynn for legal fees to execute the lease. (Credit account titles are automatically indented whern the amount is entered. Do not indent manually.) Credit Account Titles and Explanation Debit