On January 1, 2021, Kiki Co. and Jiji Co. entered a lease for machinery. Presented below is selected information about the non-cancelable lease agreement, the leased equipment, and the parties to the lease.

The lease term is 3 years; at the end of which time the machine is to be returned to Jiji.

The equipment is stock machinery, and Jiji has plans for its use when it is returned.

The lease requires 3 beginning-of-the-year rental payments of $6,822 each.

Jiji has no concerns about collecting the rentals from Kiki.

The useful life of the equipment is estimated to be 7 years.

The equipment has an approximate fair value of $42,000, and unknown to Kiki, cost Lessor $30,000.

The machines residual is expected to be $27,000 but the lease requires no guarantee of this amount.

Unknown to Kiki, Jiji determined the rentals so as to earn a 6% return.

Kiki has a borrowing rate of 8% and is unable to determine Jijis implicit rate.

RequiredPrepare all lease-related journal entries that Kiki and Jiji, respectively, should have recorded on each of the following dates, supported by computational schedules as appropriate:

January 1, 2021

December 31, 2021