Recording Finance Lease Journal Entries Guaranteed Residual Value

Smith, the lessee, signs an 8-year lease agreement for a floor of a building on December 31 that requires annual payments of $28,000, beginning immediately. The residual value of $20,000 is guaranteed to the lessor at the end of the lease term. Smith estimates a residual of $12,000 at the end of the lease term. Smith is aware of the lessors implicit rate of interest of 7%. Record Smiths journal entries on December 31, assuming that the lease is properly classified as a finance lease.

Note: Round your answers to the nearest whole dollar.