Sarasota Leasing Company agrees to lease equipment to Ivanhoe Corporation on January 1, 2020. The following information relates to the lease agreement.

1.		The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years.
2.		The cost of the machinery is $473,000, and the fair value of the asset on January 1, 2020, is $746,000.
3.		At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $50,000. Ivanhoe estimates that the expected residual value at the end of the lease term will be 50,000. Ivanhoe amortizes all of its leased equipment on a straight-line basis.
4.		The lease agreement requires equal annual rental payments, beginning on January 1, 2020.
5.		The collectibility of the lease payments is probable.
6.		Sarasota desires a 10% rate of return on its investments. Ivanhoes incremental borrowing rate is 11%, and the lessors implicit rate is unknown.

(Assume the accounting period ends on December 31.)

Prepare the journal entries Ivanhoe would make in 2020 and 2021 related to the lease arrangement.

Prepare the journal entries Sarasota would make in 2020 and 2021 related to the lease arrangement.

Calculate the amount of the annual rental payment required. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,972.) Annual rental payment SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT x Your answer is incorrect. Try again. Compute the value of the lease liability to the lessee. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,972.) Present value of minimum lease payments Date Account Titles and Explanation Debit Credit X 1/1/20 X (To record the lease.) (To record lease payment.) X 12/31/20v (To record amortization.) X (To record interest.) 1/1/21 X 12/31/21 (To record amortization.) (To record interest.) | 1/1/20 X X X X X (To record the lease.) X 1/1/20 X (To record lease payment.) X 12/31/20 X 1/1/21 X 12/31/21 X Suppose Ivanhoe expects the residual value at the end of the lease term to be $40,000 but still guarantees a residual of $50,000. Compute the value of the lease liability at lease commencement. Lease liability