E$20\mathrm{.}12$B $($LO $2,4)($Lessee$-$Lessor Entries; Sales$-$Type Lease with Bargain Purchase Option$)$ On January $1,2025,$ Chambers Company leased equipment to Daylight Corporation. The following information pertains to this lease:

The term of the non$-$cancelable lease is $4$ years. At the end of the lease term, Daylight has the option to purchase the equipment for $$2,000,$ while the expected residual value at the end of the lease is $$15,000.$

Equal rental payments are due on January $1$ of each year, beginning in $2025.$

The fair value of the equipment on January $1,2025,$ is $$220,000,$ and its cost is $$192,000.$

The equipment has an economic life of $5$ years. Daylight depreciates all of its equipment on a straight$-$line basis.

Chambers set the annual rental to ensure a $4\%$ rate of return. Daylight's incremental borrowing rate is $5\%,$ and the implicit rate of the lessor is unknown.

Collectibility of lease payments by the lessor is probable.

Instructions

$($Round all numbers to the nearest dollar.$)$

$($Both the lessor and the lessee's accounting periods end on December $31.)$

a$.$ Discuss the nature of this lease to Chambers and Daylight.

b$.$ Calculate the amount of the annual rental payment.

c$.$ Prepare all the necessary journal entries for Chambers for $2025.$

d$.$ Suppose the collectibility of the lease payments was not probable for Chambers. Prepare all necessary journal entries for the company in $2025.$

e$.$ Prepare all the necessary journal entries for Daylight for $2025.$

f$.$ Discuss the effect on the journal entry for Daylight at lease commencement, assuming initial direct costs of $$4,000$ are incurred by Daylight to negotiate the lease.