Indiana Jones Corporation enters into a 6-year lease of equipment on December 31, 2016, which requires six annual payments of $40,000 each, beginning December 31, 2016. In addition, Indiana Jones guarantees the lessor a residual value of $20,000 at the end of the lease. However, Indiana Jones believes it is probable that the expected residual value at the end of the lease term will be $10,000. The equipment has a useful life of 6 years. Prepare Indiana Jones’ December 31, 2016, journal entries, assuming the implicit rate of the lease is 6% and this is known to Indiana Jones.
