Refer to the lease details in Problem 14-12B. 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

(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.

Problem 14-12B

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.