On October 1, 20X1, Vaughn, Inc., leased a machine from Fell Leasing Company for five years. The lease requires five annual payments of $10,000 beginning September 30, 20X2. Vaughn’s incremental borrowing rate is 11%, and it uses a calendar year for reporting purposes. The machine has a 12-year economic life with zero salvage value. Vaughn correctly classifies the lease as an operating lease.

Required:

1. At what amount should Vaughn record the leased equipment on October 1, 20X1?

2. What is the amount of lease expense that Vaughn should record for the year ended December 31, 20X1, and for the year ended December 31, 20X2?

3. How much of the lease liability should be classified as current on December 31, 20X1, and December 31, 20X2?