Penny manufactured a new car at a cost of $20,000 and leased it to Leonard on February 1, 2013. The lease calls for 4 equal annual payments of $6,989 on February 1st of each year including the year of lease inception. The car has a remaining useful life of 4 years. The lease does not have a bargain purchase option. Collectibility of payments is reasonably certain and there are no important uncertainties relating to the costs to be incurred by the lessor. The lessor uses a rate of return of 8%. The PV factor for an annuity due for 4 periods at 8% interest is 3.57710.

Prepare the appropriate journal entries for Penny at the inception of the lease (i.e., February 1, 2013). Make sure to write Dr. or Cr. before each line, indent credits, and write amounts rounded to the nearest dollar without using commas. List Dr. and Cr. accounts in alphabetical order.