On January 1,2025, Carla Vista Company leased equipment to Sandhill 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, Sandhill 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 2025.

3.The fair value of the equipment on January 1,2025 , is $150,000, and its cost is $120,000. 4.The equipment has an economic life of 8 years. Sandhill depreciates all of its equipment on a straight-line basis.

5.Carla Vista set the annual rental to ensure a 6% rate of return. Sandhill's incremental borrowing rate is 8% and the implicit rate of the lessor is unknown.

6.Collectability of lease payments by the lessor is probable.

Questions:

1.Calculate the amount of the annual rental payment. 2.Prepare all the necessary journal entries for Bensen for 2025. 3.Suppose the collectibility of the lease payments was not probable for Carla Vista. Prepare all necessary journal entries for the company in 2025. 4.Prepare all the necessary journal entries for Sandhills for 2025. 5.Discuss the effect on the journal entry for Sandhills at lease commencement, assuming initial direct costs of $2,000 are incurred by Sandhills to negotiate the lease.