Regina Corporation, which uses ASPE, manufactures replicators. On May 29, 2017, it leased to Barnes Limited a replicator that cost $265,000 to manufacture and usually sells for $410,000. The lease agreement covers the replicator's five-year useful life and requires five equal annual rentals of $95,930 each, beginning May 29, 2017. The equipment reverts to Regina at the end of the lease, at which time it is expected that the replicator will have a residual value of $40,000, which has been guaranteed by Barnes, the lessee. An interest rate of 12% is implicit in the lease agreement. Collectibility of the rentals is reasonably assured, and there are no important uncertainties concerning costs.
(a) Using tables, a financial calculator, or Excel functions, prove that the amount of the annual payments will yield 12% interest to Regina.
(b) Prepare Regina's May 29, 2017 journal entries.