Coates Corporation is planning to enter into a three-year lease with annual payments of $30,000 due at the beginning of each year. If the lease qualified as a capital lease, the breakdown of the payments would be as follows:

Required:
1. If the lease were an operating lease, what would be the year-by-year effects on operating and financing cash flows?
2. If the lease were a capital lease, what would be the year-by-year effects on operating and financing cash flows?

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Present value of an annuity due factor for 3 years at 8% Annual lease payment Present value of lease payments 2.78326 X $30,000 $83,498