Problem 119 Krause Company on January 1, 2018, enters into a 9-year noncancelable lease for equipment having an estimated useful life of 10years and a fair value to the lessor, Daly Corp., at the inception of the lease of $4,200,000. Krause's incremental borrowing rate is 8%. Krause uses the straight-line method to depreciate its assets. The lease contains the following provisions: 1. 2. 3. Rental payments of $263,000 for property taxes, payable at the beginning of each six-month period. An option allowing the lessor to extend the lease one year beyond the lease term. A guarantee by Krause Company that Daly Corp. will realize $206,000 from selling the asset at the expiration of the lease. However, the actual residual value is expected to be $119,500. Click here to view factor table. What kind of lease is this to Krause Company? What should be considered the lease term? The lease term years What is the present value of the lease payments (1) for classification of the lease and (2) for measurement of the lease liability? (PV factor for annuity due of 20 semi-annual payments at 8% annual rate, 14.13394; PV factor for amount due in 20 semi-annual interest periods at 8% annual rate, 0.45639) (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 5,275.) Present value of the lease payment Present value of the lease payments for measurement of lease liability What journal entries would Krause record during the first year of the lease? (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to o decimal places e.g. 5,275.) Date Account Titles and Explanation Debit Credit January 1, 2018 (To record lease) January 1, 2018 (To record cash) July 1, 2018 (To record lease) December 31, 2018 (To record amortization) December 31, 2018 (To record interest expense)