Problem 3-Leases NewCo Leasing Company agrees to lease machinery to Spirit Corporation on January 1, 2018. The following information relates to the lease agreement. Assume a December 31 Year-End. 1. The term of the lease is 6 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $400,000, and the fair value of the asset on January 1, 2018, is $600,000. 3. At the end of the lease term, NewCo expects that the machinery will be valued at $100,000 and has given Spirit has the option to purchase the asset at a discounted amount of $50,000. 4. The lease agreement requires equal annual rental payments of $113,864.31, beginning on January 1, 2018. 5. The collectability 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. 6. NewCo desires an 8% rate of return on its investments. Spirit incremental borrowing rate is 6%, and the lessor's implicit rate is unknown. Present value of 1 for 6 periods at 6% Present value of 1 for 6 periods at 8% Present value of annuity for 6 periods at 6% Present value of annuity for 6 periods at 8% Present value of annuity due for 6 periods at 6% Present value of annuity due for 6 periods at 8% 0.70496 0.63017 4.91732 4.62288 5.21236 4.99271 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 Spirit would make in 2019 related to the lease arrangement. (d) Prepare the journal entries NewCo would make in 2019