Stellar Leasing Company agrees to lease equipment to Pearl Corporation on January $1\mathrm{.}2025.$ The following information relates to the

lease agreement.

The term of the lease is $7$ years with no renewal option, and the machinery has an estimated economic life of $9$ years.

The cost of the machinery is $$495,000,$ and the fair value of the asset on January $1,2025,$ is $$704,000.$

At the end of the lcase term, the asset rever ts to the lessor and has a guarantece residual valuc of $$45\mathrm{.}000.$ Pearl cstimates

that the expected residual value at the end of the lease term will be $$45,000.$ Pearl amor ties all of its leased equipment on a

straight$-$line basis.

The lease agreement requires equal annual rental payments, beginning on January $1,2025.$

The collectibility of the lease payments is probable.

Stellar desires a $9\%$ rate of return on its investments. Pearl's incremental borrowing rate is $10\%,$ and the lessor's implicit rate

is unknown.

$($Assume the accounting period ends on December $31.)$

Click here to view factor tables.

$($a$)$

Discuss the nature of this lease for both the lessee and the lessor.

This is a for Peart.

This is a for Stellar.

$($b$)$

Calculate the amount of the annual rental payment required. $($Round present value factor calculations to $5$ decimal places, e$.$g$.$

$1\mathrm{.}25124$ and the final answer to $0$ decimal places e$.$g$.58,972.)$

Annual rental payment $

$($c$)$

Compute the value of the lease liability to the lessee. $($Round present value factor calculations to $5$ decimal places, eg$.1\mathrm{.}25124$ and the

final answer to $0$ decimal places e$.8\mathrm{.}58,972.)$

Account Titles and Explanation

$($To record lease payment.$)$

$($e$)$

Prepare the journal entries Stellar would make in $2025$ and $2026$ related to the lease arrangement. $($Credit account titles are

automatically indented when amount is entered. Do not indent manually. If no entry is required, select $"$No Entry" for the account titles and

enter of for the amounts. Round answer to

$1\mathrm{.}25124$ and the final answer to $0$ decimal places es$,58,972.)$