Capital Lease The Kansas City Meat Packing Company acquired packaging equipment on a capital lease for annual lease payments of $40,000 at the end of each of 3 years. The implicit interest rate was 18% com- pounded annually. 1. Compute the present value of the capital lease. 2. Prepare journal entries at the inception of the lease and for each of the 3 years. Distinguish between the short and long-term classifications of the lease liability.