Silver Leasing agrees to lease equipment to A&B Furniture on January 1, 2022. The following information relates to the lease agreement. 1. The term of the lease is 5 years with no renewal option, and the machinery has an estimated economic life of 5 years.

2. The cost of the machinery is $700,000. The fair value of the asset on January 1, 2022 is $700,000.

3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $75,000. The expected residual value would be $25,000 at the end of the lease term. A&B uses straight-line depreciation for all long-term assets.

4. Silvers implicit rate is 5%, and A&Bs incremental borrowing rate is 5%.

Required:

1. Calculate the amount of the annual rental payment required (assuming payments are to be made in advance).

2. Prepare the journal entries to record the lease for A&B (the lessee) for the year 2022.

3. Prepare the journal entries to record the lease for Silver (the lessor) for the year 2022.