Financial Statement Impact of a Lease On January 1, 2008, Muske Trucking Company leased a semitractor and trailer for five years.

Annual payments of $28,300 are to be made every December 31 beginning December 31, 2008.

Interest expense is based on a rate of 8%. The present value of the minimum lease payments is $113,000 and has been determined to be greater than 90% of the fair market value of the asset on January 1, 2008. Muske uses straight-line depreciation on all assets.

Required 1. Prepare a table similar to Exhibit 10-7 to show the five-year amortization of the lease obligation.

2. Prepare the journal entry for the lease transaction on January 1, 2008.

3. Prepare all necessary journal entries on December 31, 2009 (the second year of the lease).

4. Prepare the balance sheet presentation as of December 31, 2009, for the leased asset and the lease obligation.