Blue Corporation leased equipment to Larkspur, Inc. on January 1, 2017. The lease agreement called for annual rental payments of $1,148 at the beginning of each year of the 3-year lease. The equipment has an economic useful life of 7 years, a fair value of $7,200, a book value of $5,200, and Blue expects a residual value of $4,700 at the end of the lease term. Blue set the lease payments with the intent of earning a 6% return, though Larkspur is unaware of the rate implicit in the lease and has an incremental borrowing rate of 8%. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) What is the amount of the rental payments used in the lease agreement? (Round answer to 0 decimal places, e. g. 5,275.) Rental payments $

Prepare the entries for Blue for 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e. g. 5,275.) Date Account Titles and Explanation Debit Credit 1/1/17 12/31/17 (To record the recognition of the revenue) 12/31/17 (To record depreciation expense on the leased equipment) How would Blue’s accounting in part (a) change if it incurred legal fees of $800 to execute the lease documents and $700 in advertising expenses for the year in connection with the lease? (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e. g. 5,275.) Date Account Titles and Explanation Debit Credit 1/1/17 Over the course of the year 12/31/17