Pina Corporation leased equipment to Kingbird, Inc. on January 1, 2017. The lease agreement called for annual rental payments of $1,239 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $8,800, a book value of $6,800, and Pina expects a residual value of $6,300 at the end of the lease term. Pina set the lease payments with the intent of earning a 6% return, though Kingbird 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.

a. Determine the nature of the lease to both Pina and Kingbird.

b. Prepare all necessary journal entries for Kingbird in 2017.

c. How would the measurement of the lease liability and right-of-use asset be affected if, as a result of the lease contract, Kingbird was also required to pay $500 in commissions, prepay $700 in addition to the first rental payment, and pay $150 of insurance each year?

d. Suppose, instead of a 3-year lease term, Kingbird and Pina agree to a one-year lease with a payment of $1,239 at the start of the lease. Prepare necessary journal entry for Kingbird in 2017.