Refer to the information in P12–10. Assume that at the commencement of the lease, collectibility of the payments is not probable and the lessor uses the straight-line depreciation method.

Required:
  1. Prepare the necessary journal entries for Railcar for 2017 and 2018 under the lease.
  2. How much income does Railcar show on its income statement in 2017 and 2018 because of the lease? How does your answer compare to the income recognized in 2017 and 2018 in P12-10?
  3. Assume that because of Reading Railroad’s improved financial health, on January 1, 2020, Railcar views the collection of lease payments to be probable. What journal entry would Reading make on January 1, 2020, related to the lease. Assume that the January 1, 2020, payment has been made.