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On January $1,2017$ Baggins Co$.$ leases gardening equipment to Gamgee Inc. The details are as follows:

$$ The lease has a non$-$cancelable term of $6$ years.

$$ Ownership is not transferred, there is no purchase option, and the asset is not specialized in nature. Collectability of payments is probable.

$$ The equipment has a fair value of $$245,000,$ a book value of $$200,000,$ a useful life of $9$ years, and a salvage value of $$4,000.$

$$ At the end of the lease term, Baggins expects the equipment to be worth $$24,335.$ None of the equipment$$s residual value has been guaranteed by Gamgee.

$$ Based on assessed risk Baggins has priced an $8\%$ rate of return into the lease. Gamgee$$s incremental borrowing rate is $9\%.$

$$ Equal payments are due at the beginning of each year. Both firms have December $31$st fiscal year ends.

$4.$ Prepare the $2017$ and $2018$ journal entries for Baggins.

$5.$ Make the final entries Baggins will make for the lease $($the December $31,2022$ entries$).$ Assume that the equipment$$s value at the conclusion of the lease is $$23,000.$ Also make the entries Baggins would make if the equipment$$s value at the end of the lease is $$26,000.$

$6.$ Assuming the equipment came back worth $$23,000$ at the end of the lease, what is the total profit Baggins records over the entire life of the lease?

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