Problem 21A-6 b-f (Part Level Submission)

Stellar Leasing Company agrees to lease equipment to PearlCorporation on January 1, 2017. The following information relatesto the lease agreement. 1. The term of the lease is 7 years with norenewal option, and the machinery has an estimated economic life of9 years. 2. The cost of the machinery is $520,000, and the fairvalue of the asset on January 1, 2017, is $737,000. 3. At the endof the lease term, the asset reverts to the lessor and has aguaranteed residual value of $110,000. Pearl estimates that theexpected residual value at the end of the lease term will be110,000. Pearl amortizes all of its leased equipment on astraight-line basis. 4. The lease agreement requires equal annualrental payments, beginning on January 1, 2017. 5. Thecollectibility of the lease payments is probable. 6. Stellardesires a 10% rate of return on its investments. Pearl’sincremental borrowing rate is 11%, and the lessor’s implicit rateis unknown. (Assume the accounting period ends on December 31.)

Prepare the journal entries Pearl would make in 2017 and 2018related to the lease arrangement. (Credit accounttitles are automatically indented when amount is entered. Do notindent manually. If no entry is required, select "No Entry" for theaccount titles and enter 0 for the amounts. Round answers to 0decimal places e.g. 58,972.) Date Account Titles and Explanation Debit Credit 1//1/17 664702 Lease Liability 664702 (To record the lease.) Lease Liability 127081 Cash 127081 (To record lease payment.) 12/31/17 (To record amortization.) (To record interest.) 1/1/18 Lease Liability 127081 Cash 127081 12/31/18 (To record amortization.) (To record interest.)