On January 1, 2020, Ivanhoe 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 $6,000.
2.		Equal rental payments are due on January 1 of each year, beginning in 2020.
3.		The fair value of the equipment on January 1, 2020, is $120,000, and its cost is $90,000.
4.		The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis.
5.		Ivanhoe set the annual rental to ensure a 4% rate of return. Flynns incremental borrowing rate is 5%, 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. Click here to view factor tables. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

(a)

Correct answer icon

Your answer is correct.

Discuss the nature of this lease to Ivanhoe and Flynn.

The nature of this lease for Ivanhoe is a financesales-typeoperating lease.

The nature of this lease for Flynn is a operatingfinancesales-type lease.

eTextbook and Media

List of Accounts

Attempts: unlimited

(b)

Correct answer icon

Your answer is correct.

Calculate the amount of the annual rental payment. (Round answer to 0 decimal places, e.g. 5,275.)

Annual rental payment

$

eTextbook and Media

List of Accounts

Attempts: unlimited

(c)

Correct answer icon

Your answer is correct.

Prepare all the necessary journal entries for Ivanhoe for 2020. (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. Record journal entries in the order presented in the problem.)

Date	Account Titles and Explanation	Debit	Credit
1/1/2012/31/20
	(To record the lease)
1/1/2012/31/20
	(To record lease payment)
1/1/2012/31/20

eTextbook and Media

List of Accounts

Attempts: unlimited

(d)

Correct answer icon

Your answer is correct.

Suppose the collectibility of the lease payments was not probable for Ivanhoe. Prepare the necessary journal entry for the company in 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
1/1/20

eTextbook and Media

Assistance Used

List of Accounts

Attempts: unlimited

(e)

Prepare all the necessary journal entries for Flynn for 2020. (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. Record journal entries in the order presented in the problem.)

Date	Account Titles and Explanation	Debit	Credit
1/1/2012/31/20
	(To record the lease)
1/1/2012/31/20
	(To record the lease payment)
1/1/2012/31/20
	(To record amortization of the right-of-use asset)
1/1/2012/31/20
I have already answered most of the question. Can someone answer part e?	(To record interest expense)