Problem 120 (Part Level Submission) Merando Corporation leases a building to Fernetti, Inc. on January 1, 2017. The following facts pertain to the lease agreement. 1. The lease term is 10 years with equal annual rental payments of $51,800 at the end of each year. 2. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. 3. The building has a fair value of $514,800, a book value to Merando of $327,800, and a useful life of 15 years. 4. At the end of the lease term, Merando and Fernetti expect the residual value of the building to be $187,000, and this amount is guaranteed by Baden, Inc., a third party. 5. Merando wants to earn a 5% return on the lease, and collectability of the payments is probable. Describe the nature of this lease to both Merando and Fernetti. LINK TO TEXT Assume the rate of return to amortize the net lease receivable to zero is 13%. Prepare the journal entries to record the entries for Merando for 2017 and 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 1/1/17 Policy 10.2000-2018 John Wiley & Sons, Inc. All Rights Reserved. A Division of John Wiley & Sons, Inc. Version 4.24. 03:53 PM Assume the rate of return to amortize the net lease receivable to zero is 13%. Prepare the account titles are automatically indented when amount is entered. Do not indent Date Account Titles and Explanation 1/1/17 12/31/17 12/31/18 Debit 00 00 Credit 00 00 acy Policy | 2000-2018 John Wiley & Sons, Inc. All Rights Reserved. A Division of John Wiley & Sons, In- Prepare the journal entries for Jabari (the lessee) for 2017 and 2018, assuming the rate implicit in the lease is known to Fernetti. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Debit Date Account Titles and Explanation 1/1/17 12/31/17 12/31/18 00 Credit 19 John Wiley & Sons, Inc. All Rights Reserved. A Division of John Wiley & Sons, Inc. Version