Operating Lease Boulder Dash Corporation leases automobiles from Zippo Leasing for use by its sales personnel. The leased vehicles are used for two years and then returned to Zippo Leasing. All maintenance and repair is done by Zippo. Boulder Dash makes a deposit of $5,000 at the beginning of the lease on each car and pays monthly rentals of

$400 per car. The cars cost Zippo approximately $16,000 each. The deposit is refunded when the car is returned. Boulder Dash pays for all gas and annual registration fees. Boulder Dash currently has 22 cars under lease from Zippo.

a. Is the lease an operating lease or a capital lease? Explain why.

b. What amount of expense related to the lease will Boulder Dash record for the current year?

c. How is the $5,000 deposit per car reported by Boulder Dash?