Keefer Inc. uses leases as a means of selling its equipment. On January 1, 2014, the company leased a machine to Jeremy Manufacturing Inc. The cost of the machine to Keefer was $78,450. The fair market value was $101,184 at the time of the lease. Annual lease payments are $13,500 and are payable in advance for 12 years. At the end of the lease term, title to the machine will pass to Jeremy Manufacturing.
(1) Provide the entries required on Keefer's books to record the lease and the first payment.
(2) Compute the manufacturer's profit to be recognized by Keefer in the first year of the lease.
(3) Provide the entry required on Keefer's books to recognize interest revenue at the end of the first year. (Round to nearest dollar.)