On January 1, 2019, Wilcox Inc. leased equipment from Zed Co. for use in the engineering department.

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Question:

On January 1, 2019, Wilcox Inc. leased equipment from Zed Co. for use in the engineering department. The non-cancellable lease is for 6 years with an unguaranted residual value of $5000 and the estimated economic life of the leased equipment is 8 years. The lease does not contain automatic title transfer or a bargain purchase option. Lease payments are $9000 per year, payable each December 31. The incremental borrowing rate for Wilcox is 8% and Zed's implicit interest rate (known by Wilcox) is 6%. Wilcox uses straight-line depreciation for the equipment. To Zed, the equipment had a cost of $44000 and fair value of $48000. The collectability of the lease payments is probable for the lessor.

Instructions:

Provide the necessary journal entries to record the transactions for the lessee and lessor for the period January 1, 2019 through December 31, 2020.