Problem 4. On January 1, 2019, Wilcox Inc. leased equipment from Zed Co. for use in the engineering department. The noncancelable lease is for 6 years with an unguaranteed residual value of $5,000 and the estimated economic life of the leased equipment is 10 years. The lease does not contain automatic title transfer or a bargain purchase option. Lease payments are $9,000 per year, payable each December 31. The incremental borrowing rate for Wilcox is 8 percent and Zeds implicit interest rate (known by Wilcox) is 6 percent. Wilcox uses straight-line depreciation for the equipment. To Zed, the equipment had a cost of $44,000 and fair value of $48,000. The collectability of the lease payments is probable for the lessor.

Instructions

Provide the necessary journal entries to record the transactions for the lessee and lessor for the period January 1, 2019 through December 31, 2020.