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5. Accounting for Lease Agreement - Lessee (18 points) Gopher Sales and Service entered into a lease agreement to lease a fleet of five vehicles from Hawkeye Motors. The term of the lease is five years and Gopher makes annual payments of $21,000 per year beginning on January 1, 2017 (and then every December 31 through December 31, 2020). January 1, 2017 is also the lease commencement date. Gopher does not guarantee any residual value in the lease agreement. Gopher received $8,000 on 1/1/17 as an incentive to sign the lease agreement and incurred initial direct costs in 2016 of $2,500 related to the lease that were recorded as prepaid assets. The estimated economic life of the vehicles is ten years and their fair value at lease inception is $170,000. Gopher is unaware of Hawkeye's implicit rate, but Gopher's incremental borrowing rate is 4% per year. There is no transfer of ownership at the end of the lease, nor is there a purchase option. The vehicles are not of a specialized nature. Required: a. What type of lease has Gopher signed? Explain in terms of the new US GAAP standard (ASC 842). (2 pts) b. Prepare all of the 2017 journal entries for Gopher. (10 pts) c. Prepare all of the 2018 journal entry(ies) for Gopher. (2 pts) d. Prepare all of the 2021 journal entries for Gopher. (4 points)

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