Problem 21A-3 a-d (Part Level Submission)

Wildhorse Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2017. Annual rental payments of $61,020 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 7%; Wildhorses incremental borrowing rate is 9%. Wildhorse is unaware of the rate being used by the lessor. At the end of the lease, Wildhorse has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Wildhorse uses the straight-line method of depreciation on similar owned equipment.

(a)

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Prepare the journal entries, that Wildhorse should record on December 31, 2017. (Credit account titles are automatically indented when 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. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places, e.g. 58,971.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2017
	(To record leased asset and related liability.)
	(To record the first rental payment.)