Use the information below to answer the following SEVEN items

On January 1, 2018, OC Leasing Company (lessor) leased equipment to Golden Gate Corporation (lessee). The following information pertains to this lease.

• The term of the noncancelable lease is 4 years. The equipment reverts to OC Leasing at the end of the lease term.

• Equal rental payments are due on January 1st of each year, beginning in 2018.

• The fair value and cost of the equipment to OC Leasing on January 1, 2018, are $250,000 and $200,000 respectively.

• The equipment has an economic life of 4 years, with a residual value of $60,000 that is unguaranteed.

• OC Leasing sets the annual rental to ensure a 9% rate of return. Golden Gates incremental borrowing rate is 10%. OC leasings implicit rate is known to Golden Gate. Collectability of lease payments is reasonably assured.

• Present value of an ordinary annuity of 1 for 4 periods at 9% is 3.23972

• Present value of an annuity due of 1 for 4 periods at 9% is 3.53130 (6)

• Present value of 1 after 4 periods at 9% is 0.70843 (5)

• Present value of an ordinary annuity of 1 for 4 periods at 10% is 3.16986

• Present value of an annuity due of 1 for 4 periods at 10% is 3.48685

• Present value of 1 after 4 periods at 10% is 0.68301

1. For this question, assume that the annual lease payment is $62,000 and that the value of the right-of-use asset and lease liability is $210,000. What is the amount of interest expense recorded by Golden Gate on December 31st, 2018?

Answer is 13,320

2. Assume that on December 31st, 2021, end of the lease term, the balance of the lease receivable is $60,000 and the actual residual value of the equipment is $54,000. What entry, if any, would OC Leasing (Lessor) have to record on that date?

Correct answer: Debit Inventory $54,000, Debit Loss on Lease $6,000, Credit Lease Receivable $60,000.