Reference no: EM132523586

Carla Vista Company leases a building to Walsh, Inc. on January 1, 2020. The following facts pertain to the lease agreement.

Point 1. The lease term is 4 years, with equal annual rental payments of $4,901 at the beginning of each year.

Point 2. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature.

Point 3. The building has a fair value of $20,300, a book value to Carla Vista of $13,300, and a useful life of 5 years.

Point 4. At the end of the lease term, Carla Vista and Walsh expect there to be an unguaranteed residual value of $3,325.

Point 5. Carla Vista wants to earn a return of 7% on the lease, and collectibility of the payments is probable. This rate is known by Walsh.

Question 1: Using the original facts of the lease, show the journal entries to be made by both Carla Vista and Walsh in 2020.