26. Emeral Inc. is a moderately sized construction company that operates in upstate New York.

Last year it leased a crane from GD Credit Corp. for a term of 15 years at an annual rental of

$20,000 payable at the end of each year. The crane is expected to be completely worn out and valueless at the end of the lease. Before the lease agreement was made, other financing sources were willing to lend to Emeral at 5%. Emeral will depreciate the crane using the straight line method over the 15-year life of the lease.

Just before the lease was signed, Emeral’s balance sheet was as follows:

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Emeral Inc. Balance Sheet ($000) Current assets $ 20 Current liabilities $ 10 Fixed assets 180 Long-term debt 90 Total assets $200 Equity 100 The lease is treated as a financing lease. Total liabilities & equity $200 a. Construct Emeral's balance sheet after the lease is signed showing the leased asset and lease obligation separately. (We'll work in whole dollars but present balance sheet accounts rounded to the nearest $1,000.) b. Calculate the firm's debt ratio before and after the lease takes effect, and comment on the difference. c. (Optional) Reconstruct the balance sheet after the first annual lease payment is made assuming all other accounts are unchanged.