Splish Brothers Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Sunland Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement:

1.		Sunland has the option to purchase the equipment for $18,500 upon termination of the lease. It is not reasonably certain that Sunland will exercise this option.
2.		The equipment has a cost of $170,000 and fair value of $219,000 to Splish Brothers Leasing. The useful economic life is 2 years, with an unguaranteed residual value of $18,500.
3.		Splish Brothers Leasing desires to earn a return of 5% on its investment.
4.		Collectibility of the payments by Splish Brothers Leasing is probable.

1. Prepare the journal entries on the books of Splish Brothers Leasing to reflect the payments received under the lease and to recognize income for the years 2017 and 2018.

b. Assuming that Sunland exercises its option to purchase the equipment on December 31, 2018, prepare the journal entry to record the sale on Splish Brothers Leasings books.