Sheridan Corp. is a manufacturer of truck trailers. On January 1, 2021, Sheridan Corp. leases 11 trailers to Pina Company under a 5-year noncancelable lease agreement. The following information about the lease and the trailers is provided:

1.Equal annual payments that are due on January 1 each year provide Sheridan Corp. with an 8% return on net investment.2.Titles to the trailers pass to Pina at the end of the lease.3.The fair value of each trailer is $51,100. The cost of each trailer to Sheridan Corp. is $47,200. Each trailer has an expected useful life of nine years.4.Collectibility of the lease payments is probable.

Instructions

(a)What type of lease is this for the lessor?

(b)Calculate the annual lease payment. (Round to nearest dollar.)

(c)Prepare lease amortization schedule for Hayes Corp. for the first three years.

(d)Prepare the journal entries for the lessor for 2021 to record the lease agreement, the receipt of the lease rentals, and the recognition of revenue (assume the use of a perpetual inventory method and round all amounts to the nearest dollar).