Sheridan Manufacturing Ltd. agrees to lease equipment to Sheffield Lte. on July 15, 2020. Sheridan follows ASPE and Sheffield is a public company following IFRS 16. The following information relates to the lease agreement. 1. The lease term is seven years, with no renewal option, and the equipment has an estimated economic life of nine years. 2. The equipment's cost is $435,000 and the asset's fair value on July 15, 2020, is $564,900. 3. At the end of the lease term, a payment to Sheridan, the lessor, in the amount of $78,000 is expected to be payable by Sheffield, the lessee, under a residual value guarantee. Sheffield depreciates all of its equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments beginning on July 15, 2020. 5. 6. 7. Sheridan usually sells its equipment to customers who buy the product outright, but Sheffield was unable to get acceptable financing for a cash purchase. Sheridan's credit investigation on Sheffield revealed that the company's financial situation was deteriorating. Because Sheffield had been a good customer many years ago, Sheridan agreed to enter into this lease agreement, but used a higher-than-usual 15% interest rate in setting the lease payments. Sheffield is aware of this rate. Sheridan is uncertain about what additional costs it might have to incur in connection with this lease during the lease term, although Sheffield has agreed to pay all executory costs directly to third parties. Sheridan incurred legal costs of $2,500 in early July 2020 in finalizing the lease agreement. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE OF 1. Identify the nature of this lease for both the lessee and the lessor. Sheffield Lte. Sheridan Manufacturing Ltd. The nature of the lease A capital lease An operating lease Using time value of money tables, a financial calculator, or Excel functions, calculate the amount of the annual rental payment that is required to obtain a return of 15% for Sheridan. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to O decimal places, e.g. 5,275.) Annual rental payment $ Prepare the journal entries that Sheffield would make in 2020 and 2021 related to the lease arrangement, assuming that the company has a December 31 fiscal year end and that it does not use reversing entries. no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to O decimal places, e.g. 5,275.) Date Account Titles and Explanation July 15, 2020 Dec. 31, 2020 Dec. 31, 2020 (To record depreciation expense.) July 15, 2021 (To record interest.) Dec. 31, 2021 (To record lease payment.) Dec. 31, 2021 (To record depreciation expense.) Debit Credit From the information you have calculated and recorded, identify all balances related to this lease that would be reported on Sheffield's December 31, 2020 statement of financial position and statement of income, and where each amount would be reported. Statement of financial position: Sheffield Statement of Income: $ $ $ Prepare the journal entries that Sheridan would make in 2020 and 2021 related to the lease arrangement, assuming that the company has a December 31 fiscal year end and does not use reversing entries eg. 5,275.) Date Account Titles and Explanation July 15, 2020 July 15, 2020 (To record rental equipment.) July 15, 2020 (To record collection of rent.) Dec. 31, 2020 (To record capitalized legal costs.) Dec. 31, 2020 (To record rent.) July 15, 2021 (To record depreciation expense.) July 15, 2021 (To record rent.) Dec. 31, 2021 (To record collection of rent.) Dec. 31, 2021 (To record depreciation expense.) Debit Credit From the information you have calculated and recorded, identify all balances related to this lease that would be reported on Sheridan's December 31, 2020 statement of financial position and statement of income, and where each amount would be reported. Statement of financial position: Sheridan Statement of Income: $ $