Problem 3- Leases Rookie Leasing Company agrees to lease machinery to Pro Corporation on January 1, 2017. The following information relates to the lease agreement. 1. The term of the lease is 6 years with no renewal option, and the machinery has an 2. The cost of the machinery is $300,000, and the fair value of the asset on January 1, 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed estimated economic life of 8 years. 2017, is $400,000. residual value of $50,000. Pro depreciates all of its equipment on a straight-line basis. on January 1, 2017, 4. The lease agreement requires equal annual rental payments of $73,805.91, beginning 5. The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the amount of costs yet to be incurred by the lessor. Rookie desires an 8% rate of return on its investments. Pro's incremental borrowing rate 6. is 10%, and the lessor's implicit rate is unknown. Present value of 1 for 6 periods at 8% Present value of 1 for 6 periods at 10% Present value of annuity for 6 periods at 8% Present value of annuity for 6 periods at 10% Present value of annuity due for 6 periods at 2% Present value of annuity due for 6 periods at 10% 0.63017 0.56447 4.62288 4.35526 4.99271 4.79079 Instructions Assume the accounting period ends on December 31.) (a) What type of lease is this for the lessee? For the lessor? (b) Compute the present value of the minimum lease payments for both the lessee and lessor (c) Prepare the journal entries Pro would make in 201 (d) Prepare the journal entries Rookie would make in 2017. 7 related to the lease arrangement