This equipment is NOT considered specialized equipment.

Start date: January 1, 2020

Contract term: 3 years (The contract ends on December 31, 2022.) The property title will be transferred to the lessee free of charge at the end of the third year.

Annual payments: $37,174 due on January 1 of each year. The first payment was made on 1/1/20.

Estimated useful life for the asset: 4 years.

Estimated residual value: zero.

Landlord's interest rate: 12%, the lessee does NOT know it.

Lessee Incremental Borrowing Rate: 14%.

The fair value (sale price) of the asset is $100,000.

The original acquisition cost that the lessor paid for the equipment was $90,000

2. Indicate the accounts and the amount that the lessee will report in the Statement of Income and Expenses for 2020 (account and amount).

3. Prepare the journal entries that the LANDLORD will need to record for January 1, 2020 only.