The Miller Motel has just signed a lease with International Computers, Inc., for a new front-office computer. Lease provisions and other relevant information are as follows:

Lease term is 5 years starting on January 1, 20X1.

2. Annual payments are $60,000.

The fair market value of the computer at January 1, 20X1, is $200,000.

. The estimated economic life of the computer is 7 years.

. The lease payments include $15,000 for maintenance and $3,000 for insurance.

The Miller Motel’s incremental borrowing rate is 12%.

Required:

Should the lease be capitalized or expensed?

Assuming the lease is capitalized, provide the journal entry to record the lease and the initial payment.

Provide the journal entry to record the second payment.