On January 1, 2020, Sandhill 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 $5,000.
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 $165,000, 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.		Sandhill set the annual rental to ensure a 6% rate of return. Flynns incremental borrowing rate is 8%, 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.)

(b)

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

Annual rental payment

$

(c)

Prepare all the necessary journal entries for Sandhill 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

(d)

Suppose the collectibility of the lease payments was not probable for Sandhill. 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

(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
	(To record interest expense)

(f)

Prepare the effect on the journal entry for Flynn at lease commencement, assuming initial direct costs of $2,000 are incurred by Flynn to negotiate the lease. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit