Refer to the lease details in Problem 14-11B. Assume that this lease is classified as an operating lease instead of a finance lease.

Required

1. Prepare the January 1 journal entry at the start of the lease to record any asset or liability.

2. Prepare the January 1 journal entry to record the first $14,000 cash lease payment.

3. Prepare the December 31 journal entry to record amortization at the end of (a) Year 1, (b) Year 2, and (c) Year 3.

4. Prepare the December 31 journal entry to record the $14,000 cash lease payment at the end of (a) Year 1 and (b) Year 2.

Data from 14-11B

On January 1, Kwak (lessee) signs a three-year lease for equipment that is accounted for as a finance lease. The lease requires three $14,000 lease payments (the first at the beginning of the lease and the remaining two at December 31 of Year 1 and Year 2). The present value of the three annual lease payments is $39,000, using a 7.9% interest rate. The lease payment schedule follows.

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Payments (A) (B) (C) (D) (E) Debit Debit Credit Ending Balance Beginning Balance Lease Liability + Lease Liability = Cash Lease of Lease Liability (А) — (С) Interest on Date of Lease Liability 7.9% x (A) (D)- (B) Payment Jan. 1, Year 1... Dec. 31, Year 1... $39,000 S14,000 S14,000 $25,000 25,000 $1,975 12,025 14,000 12,975 1,025 $3,000 Dec. 31, Year 2 12,975 12,975 $39,000 14.000 $42,000