A capital lease agreement for equipment requires 10 annual payments of \(\$ 8,000\), with the first payment due on January \(2,19 \mathrm{X} 5\). The present value of the 9 future lease payments at 10 percent is \(\$ 51,831\).

\section*{Required}

1. Journalize the following lessee transactions:

Jan. 2 Beginning of lease term and first annual payment.
Dec. 31 Depreciation of equipment.
31 Interest expense on lease liability.
\(19 \mathrm{X} 6\)
Jan. 2 Second annual lease payment.
2. Show how to report on the \(19 \times 5\) income statement and the balance sheet at December 31, 19X5, all accounts (but Cash) affected by the 19X5 capital lease transactions.
3. Journalize the January 2, 19X5, lease payment if this is an operating lease.
\section*{CHALLENGE EXERCISES}