Splish Corporation enters into a 7-year lease of equipment on December 31, 2016, which requires 7 annual payments of $39,500 each, beginning December 31, 2016. In addition, Splish guarantees the lessor a residual value of $20,700 at the end of the lease. However, Splish believes it is probable that the expected residual value at the end of the lease term will be $10,700. The equipment has a useful life of 7 years. Assume that for Lost Ark Company, the lessor, collectibility of lease payments is probable and the carrying amount of the equipment is $170,000. Prepare Lost Arks 2016 and 2017 journal entries, assuming the implicit rate of the lease is 11% and this is known to Splish. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places e.g. 5,275.)

Splish Corporation enters into a 7-year lease of equipment on December 31, 2016, which requires 7 annual payments of $39,500 each, beginning December 31, 2016. In addition, Splish guarantees the lessor a residual value of $20,700 at the end of the lease. However, Splish believes it is probable that the expected residual value at the end of the lease term will be $10,700. The equipment has a useful life of 7 years. Assume that for Lost Ark Company, the lessor, collectibility of lease payments is probable and the carrying amount of the equipment is $170,000. Prepare Lost Ark's 2016 and 2017 journal entries, assuming the implicit rate of the lease is 11% and this is known to Splish. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to O decimal places e.g. 5,275.) Click here to view the factor table. Date Account Titles and Explanation Debit Credit December 31, 2016 Cost of Goods Sold Lease Receivable Sales Revenue Inventory (To record the lease) December 2016 Cash Lease Receivable (To record receipt of lease payment) December 31, 2017 Cash Interest Revenue Lease Receivable