Paso Robles Corporation leased equipment to Chiabatta, Inc. on January 1, 2020. The lease agreement called for annual rental payments at the beginning of each year of the 4-year lease. The equipment has an economic useful life of 10 years, a fair value of $11,000, a book value of $7,000, and Paso expects a residual value of $7,500 at the end of the lease term. Paso Robles set the lease payments with the intent of earning a 6% return, though Chiabatta is unaware of the rate implicit in the lease and has an incremental borrowing rate of 8%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. The lease is classified as an operating lease by both parties. Instructions: (Round all numbers to the nearest dollar.) (a) Show calculations made by Paso Robles to determine the amount of the rental payments used in the lease agreement. (b) Prepare all necessary journal entries for Chiabatta in 2020. Please include the relevant schedules to support your work. You need not prepare schedules for the full lease term. Just do what is necessary to respond to this question.