On January 1, 2017, Sheridan 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 $2,000, while the expected residual value at the end of the lease is $9,000. 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 $160,000, and its cost is $130,000. 4. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. 5. Sheridan set the annual rental to ensure a 5% rate of return. Flynns 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 lessees accounting periods end on December 31.

Calculate the amount of the annual rental payment

Prepare all the necessary journal entries for Sheridan for 2017.

Suppose the collectibility of the lease payments was not probable for Sheridan. Prepare the necessary journal entry for the company in 2017

Prepare all the necessary journal entries for Flynn for 2017.

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