PROBLEMS 8 P21-1 (Lessee- Lessor Entries, Sales-Type Lease) Glaus Leasing Company agrees to lease ma Jensen Corporation on January 1, 2014. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renenval option, and the machinery has an estimated eco 2. The cost of the machinery is $525,000, and the fair value of the asset on January 1, 2014, is $700,000 of nomic life of 9 years. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value $100,000 Jensen depreciates all of its equipment on a straight-line basis. d. The lease agreement requires equal annual rental payments, beginning on January 1, 2014 tainties surrounding the amount of costs yet to be incurred by the lessor. nil hels ate of return on is investments Jensen's incremental borrowing rate is 11 5. The collectibility of the lease payments is reasonably predictable, and there are no important un t uncer borrowing rate is 11%, and the lessor's implicit rate is unknown. Instructions Assume the accounting period ends on December 31.) (a) Discuss the nature of this lease for both the lessee and the lessor. (b) Calculate the amount of the annual rental payment required. (c) Compute the present value of the minimum lease payments (d) Prepare the journal entries Jensen would make in 2014 and 2015 related to the lease arrangement. (e) Prepare the journal entries Glaus would make in 2014 and 2015