Rauch Incorporated leases a piece of equipment to Donahue Corporation on January 1, 2020. The lease agreement called for annual rental payments of $4,892 at the beginning of each year of the 4-year lease. The equipment has an economic useful life of 6 years, a fair value of $25,000, a book value of $20,000, and both parties expect a residual value of $8,250 at the end of the lease term, though this amount is not guaranteed. Rauch set the lease payments with the intent of earning a 5% return, and Donahue is aware of this rate. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature.

(a) Your answer is correct. Determine the nature of the lease to both Rauch and Donahue. The lease is a/an operating lease to Rauch. The lease is a/an operating lease to Donahue. (b) Your answer is correct. Prepare the lease amortization schedule(s) for Donahue for all 4 years of the lease. (Round answers to 0 decimal places, eg. 5,275.) DONAHUE CORPORATION Lease Amortization Schedule Annuity-Due Basis Reduction of Lease Liability Date Annual Payment Interest on Liability LI 1/1/20 $ i $ i $ i $ 1/1/20 4892 0 4892 1/1/21 4892 666 4226 1/1/22 4892 455 4437 1/1/23 4892 233 4659 Lease Expense Schedule Lease Expense (Straight-Line) Interest on Lease Liability Amortization of ROU Asset Carrying Va ROU As: Date 1/1/20 0 ta $ ta 12/31/20 4892 666 4226 12/31/21 4892 455 4437 12/31/22 4892 233 4659 12/31/23 4892 O 4892 (c) Prepare the journal entries for Donahue for 2020 and 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit (To record the lease) (To record lease payment) > >