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Bridgeport Leasing Company agrees to lease equipment to Indigo Corporation on January 1, 2020. The...

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Accounting

Bridgeport Leasing Company agrees to lease equipment to Indigo Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $ 505,000, and the fair value of the asset on January 1, 2020, is $ 719,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $ 45,000. Indigo estimates that the expected residual value at the end of the lease term will be 45,000. Indigo amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 5. The collectibility of the lease payments is probable. 6. Bridgeport desires a 9% rate of return on its investments. Indigos incremental borrowing rate is 10%, and the lessors implicit rate is unknown. Prepare the journal entries Bridgeport would make in 2020 and 2021 related to the lease arrangement.

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