(Learning Objective 3: Determining appropriate lease category, journalizing lease transactions) On December 31, 20X0, Mugaboo Corp. entered into the following lease for an asset with six years’ useful life and a fair market value of $160,000.

■ Lease period = 4 years

■ Lease payment of $50,000 per year at the end of each year

■ Interest rate implicit in the lease = 10%

❙ Requirements 1. Based on the lease terms, determine if Mugaboo should record an operating or fi nance lease.

2. Journalize all entries related to the lease between December 31, 20X0 and 20X1.