PLEASE MAKe corrections and answer all parts.

Blue Corporation leased equipment to Larkspur, Inc. on January $1,2025.$ The lease agreement called for annual rental payments of $$1,307$ at the beginning of each year of the $3-$year lease. The $($b$)$

Your answer is partially correct.

Prepare all necessary journal entries for Larkspur in $2025.$ Larkspur uses straight$-$line depreciation. $($List all debit entries before credit entries. Credit account titles are automatically indented when

the amount is entered. Do not indent manually. Round answers to $0$ decimal places, e$.$g$.5,275.$ If no entry is required, select $"$No Entry" for the account titles and enter $0$ for the amounts. Record journal

entries in the order presented in the problem.$)$

Date

Account Titles and Explanation

Credit

Right$-$of$-$Use Asset

Lease Liability

$($To record the lease$)$

Lease Liability

$[]$

$($To record lease payment$)$

Lease Liability $($c$)$

How would the measurement of the lease liability and right$-$of$-$use asset be affected if$,$ as a result of the lease contract, Larkspur was also required to pay $$500$ in commissions, prepay $$750$ in

addition to the first rental payment, and pay $$250$ of insurance each year? $($Round answers to $0$ decimal places, e$.$g$.5,275.)$

Lease liability $

Right$-$of$-$use$-$asset $

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$($d$)$

Suppose, instead of a $3-$year lease term, Larkspur and Blue agree to a one$-$year lease with a payment of $$1,307$ at the start of the lease. Prepare necessary journal entry for Larkspur in $2025.$

$($List debit entry before credit entry. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select $"$No Entry" for the account titles and

enter $0$ for the amounts.$)$

Date Account Titles and Explanation

Debit

Credit

$\frac{1}{1}\frac{?}{25}$

equipment has an economic useful life of $7$ years, a fair value of $$10,000,$ a book value of $$8,000,$ and Blue expects a residual value of $$7,500$ at the end of the lease term. Blue set the lease

payments with the intent of earning a $6\%$ return, though Larkspur 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.

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$($For calculation purposes, use $5$ decimal places as displayed in the factor table provided.$)$

$($a$)$

Your answer is correct.

Determine the nature of the lease to both Blue and Larkspur.

The lease is a$/$an

lease to Larkspur.

The lease is a$/$an

lease to Blue.

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