Reference no: EM133177350

Question - Corporation leased equipment to Kingbird, Inc. on January 1, 2020. The lease agreement called for annual rental payments of $1,098 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $7,200, a book value of $5,200, and corporation expects a residual value of $4,700 at the end of the lease term. Corporation set the lease payments with the intent of earning a 5% return, though Kingbird is unaware of the rate implicit in the lease and has an incremental borrowing rate of 7%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Prepare all necessary journal entries for Kingbird in 2020.