Prepare all of the journal entries for the lessee

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Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Shamrock Company. The following information relates to this agreement.

1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years.

2. The fair value of the asset at January 1, 2020, is $85,000.

3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $5,000, none of which is guaranteed.

4. The agreement requires equal annual rental payments of $27,911 to the lessor, beginning on January 1, 2020.

5. The lessee's incremental borrowing rate is 5%. The lessor's implicit rate is 4% and is unknown to the lessee.

6. Shamrock uses the straight-line depreciation method for all equipment.

Question 1: Prepare all of the journal entries for the lessee for 2020 and 2021 to record the lease agreement, the lease payments, and all expenses related to this lease.

Reference no: EM132586505

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