On January 1, Rogers (lessee) signs a three-year lease for machinery that is accounted for as a operating lease. The lease requires three $26,391 lease payments (the first at the beginning of the lease and the rest at December 31 of Year 1 and Year 2). The present value of the three annual lease payments is $75,200, using a 5.380% interest rate. The lease payment schedule follows. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.

Required:

1. Prepare the January 1 journal entry at the start of the lease to record any asset or liability.

2. Prepare the January 1 journal entry to record the first $26,391 cash lease payment.

3. Prepare the December 31 journal entry to record amortization at the end of (a) Year 1, (b) Year 2, and (c) Year 3.

4. Prepare the December 31 journal entry to record the $26,391 cash lease payment at the end of (a) Year 1 and (b) Year 2.

Payments Debit Ending Debit Beginning on Lease Balance of Liability (D) Balance of Credit Liability Cash Lease Liability (a)+ (D) -B)Payment A)(C) 6.0038 Liability $75,200 48,B09 25,044 $26,391 23,765 25,044 $75,200 $26,391 48,809 Dec. 31, Year 1 Dec. 31, 2,626 1,347 $3,973 26,391 26,391 $79,173 25,044 Payments Debit Ending Debit Beginning on Lease Balance of Liability (D) Balance of Credit Liability Cash Lease Liability (a)+ (D) -B)Payment A)(C) 6.0038 Liability $75,200 48,B09 25,044 $26,391 23,765 25,044 $75,200 $26,391 48,809 Dec. 31, Year 1 Dec. 31, 2,626 1,347 $3,973 26,391 26,391 $79,173 25,044