Sheffield Corporation leased equipment to Shamrock, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,105 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $8,700, a book value of $6,700, and Sheffield expects a residual value of $6,200 at the end of the lease term. Sheffield set the lease payments with the intent of earning a 4% return, though Shamrock is unaware of the rate implicit in the lease and has an incremental borrowing rate of 6%. 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) What is the amount of the rental payments used in the lease agreement? (Round answer to 0 decimal places, e.g. 5,275.)

-rental payments $_____________________

b)Prepare the entries for Sheffield for 2020.

c) How would Sheffields accounting in part a change if it incurred legal fees of $600 to execute the lease documents and $400 in advertising expenses for the year in connection with the lease?

Date Account Titles and Explanation Debit Credit (To record the recognition of the revenue) (To record depreciation expense on the leased equipment) Date Account Titles and Explanation Debit Credit