Vaughn Leasing Company agrees to lease equipment to Bramble Corporation on January 1, 2025. The following information relates to the lease agreement. 1. 23 4. 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 $507,000, and the fair value of the asset on January 1, 2025, is $690,000. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $45,000. Bramble estimates that the expected residual value at the end of the lease term will be $45,000. Bramble amortizes all of its leased equipment on a straight-line basis. The lease agreement requires equal annual rental payments, beginning on January 1, 2025. 5. The collectibility of the lease payments is probable. 6. Vaughn desires a 10% rate of return on its investments. Bramble's incremental borrowing rate is 11%, and the lessor's implicit rate is unknown. (Assume the accounting period ends on December 31.) n 11 of 11 < > Account Tities and Explanation Lease Liability (To record the lease.) 25 v Lease Liability 31/25 2/31/25 (1/26 Cash (To record lease payment.) Amortization Expense Accumulated Depreciation-Equipment (To record amortization.) Interest Expense Cash (To record interest.) Lease Liability cash I Debit 651375 124533 86625 57953 124533 6.14/10 E Credit 651375 124533 86625 57953 124533 1/26 v Lease Liability cash 124533 2/31/26 Amortization Expense Accumulated Depreciation-Equipment 86625 (To record amortization.) 2/31/26 Interest Expense (To record interest.) 57953 124533 86625 57953