Presented below are three different lease transactions that occurred for McKay Inc. in 2014. Assume that all lease contracts start on January 1, 2014. In no case does McKay receive title to the properties leased during or at the end of the lease term.

Instructions
(a) Which of the leases above are operating leases and which are capital leases? Explain.
(b) How should the lease transaction with Dunbar Co. be recorded in 2014?
(c) How should the lease transaction for Block Delivery be recorded on January 1,2014?

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Lessor Block Deliver Computer $8,000 6 years ycars $42,000 Dunbar Co. Jens Auto Type of property Yearly rental Lease term Estimated economic life Fair valuc of lcased assct Present value of the lease rental Delivery equipment Automobile $4,200 4 years 7 years $19,000 $3,700 2 ycars cars $11,000 $38,000 Nonc $13,000 Nonc $6,400 payments Bargain purchase option Nonc