On February 1, 2017, Berwyn Ltd. signed a four-year lease for four delivery trucks. Under the terms of the lease, Berwyn must make annual lease payments of $87,500 beginning on February 1, 2017 and on each January 31 for the next three years. The interest rate that applies to the lease is 8 percent.

Required:

a. Assume Berwyn's lease was accounted for as an operating lease:

i. What amount would be recorded as an asset for the trucks on February 1, 2017?

ii. Prepare the journal entries that would have to be made in fiscal 2018 and fiscal 2020 to account for the lease.

b. Assume Berwyn's lease was accounted for as a capital (finance) lease:

i. What amount would be recorded as an asset for the trucks on February 1, 2017?

ii. What journal entry would be required on February 1, 2017 to record the lease and the initial payment?

iii. What journal entries would be required on January 31, 2018 to record the lease payment?

iv. What journal entry would be required on January 31, 2018 to record the depreciation of the trucks (assume straight-line depreciation and no residual value)?

v. What would the carrying amount of the trucks and the lease liability be on Berwyn's January 31, 2018 and 2020 balance sheets?