Problem 1 (20 points): Gardner Manufacturing Company manufactures and leases a variety of items. On 1/1/17, Gardner leased a piece of equipment to Engle Industries Company. Data relating to the lease follow: Cost of equipment to Gardner Fair market value of equipment at 1/1/17 Useful life of equipment Lease term Residual value at the end of the lease 60,000 $ 93,500 9 years 6 years (guaranteed by Engle) Implicit interest rate (known to Engle) Initial direct costs incurred in negotiation $15,000 10% S 1,000 The equipment reverts to the lessor at the end of the lease term. Both the lessor and lessee use st line depreciation and have accounting periods that end on December 31. raight- Required: a. Calculate the yearly payment that Gardner will charge Engle under this lease agreement if payments are made on 1/1 of each year, beginning 1/1/17 Explain how the lease would be classified by Gardner (lessor) and Engle (lessee). You may assume that collectibility of the lease payments is reasonably estimable and that no significant uncertainties exist with respect to future costs to be incurred by the lessor Prepare all journal entries that would be made by Gardner (lessor) in 2017. Prepare all journal entries that would be made by Engle (lessee) in 2018. Prepare the journal entries made by both Gardner and Engle on the last day of the lease term if the actual residual value is $13,000. b. c. d. e