E9-45B. (Learning Objective 3: Recording operating and capital lease, preparing lease amortization schedule) Small Billy Guff entered

Question:

E9-45B. (Learning Objective 3: Recording operating and capital lease, preparing lease amortization schedule) Small Billy Guff entered into a lease agreement for an asset on the following terms:

■ Lease period = 4 years

■ Lease payment = €18,000 at the end of each period

■ Lease interest rate = 8%

Requirements 1. Assuming that this lease qualifies as a capital lease, prepare the lease amortization table, starting from the signing of the lease to the final lease payments. Prepare the journal entry for the first lease payment.

2. Assuming that this lease qualifies as an operating lease, prepare the journal entry for the first lease payment.

3. Explain how a lease for the same item may be treated so differently by two companies.

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