Problem 21A-6 b-f (Part Level Submission)

Stellar Leasing Company agrees to lease equipment to Pearl Corporation on January 1, 2017. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $520,000, and the fair value of the asset on January 1, 2017, is $737,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $110,000. Pearl estimates that the expected residual value at the end of the lease term will be 110,000. Pearl amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2017. 5. The collectibility of the lease payments is probable. 6. Stellar desires a 10% rate of return on its investments. Pearls incremental borrowing rate is 11%, and the lessors implicit rate is unknown. (Assume the accounting period ends on December 31.)

Prepare the journal entries Pearl would make in 2017 and 2018 related to the lease arrangement. (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 answers to 0 decimal places e.g. 58,972.)

Date	Account Titles and Explanation	Debit	Credit
1//1/17		664702
	Lease Liability		664702
	(To record the lease.)
	Lease Liability	127081
	Cash		127081
	(To record lease payment.)
12/31/17
	(To record amortization.)
	(To record interest.)
1/1/18	Lease Liability	127081
	Cash		127081
12/31/18
	(To record amortization.)
	(To record interest.)