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a 4. Johnson Corporation (the lessee) entered into a general equipment lease with Merci Company (the lessor) on January 1 of Year 1 under the
a 4. Johnson Corporation (the lessee) entered into a general equipment lease with Merci Company (the lessor) on January 1 of Year 1 under the following conditions: The equipment reverts back to the lessor at the end of the lease, and there is no bargain purchase option. The lease term is 8 years and requires annual payments of $10,000 at the beginning of each year. The fair value of the equipment at lease inception is $100,000. Assume that the present value of lease payments discounted at a 10% interest rate is $58,684.19. The equipment has an estimated economic life of 20 years and has zero residual value at the end of this time Required a. Indicate whether this is an "operational or "financial lease" for the lessee? b. Prepare the journal entry that Lessee would make during the first year of the lease assuming that the lease is classified as an operating lease
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