A review of the rent expense account disclosed that the account included $10,000 representing rent 54 for the month of December 2019, for a 10 year lease of a piece of equipment. The equipment has an 55 estimated useful life of 10 years with a residual value of $30,000 56 Merchandising Corporation had the option of paying the amount of $750,000 - the fair value of the 57 asset upon signing the lease on December 1, 2019, and retaining the equipment at the end of the 58 lease. The current interest rate is 6% 59 The equipment is similar to other equipments used by Merchandising, depreciated on the 60 straight-line basis.

REQUIRED

You are to determine the proper treatment of the transaction. If you determined that transaction 65 was properly handled, you should so state. If not, please prepare all entries that would be required to 66 properly report the lease in conformity with Generally Accepted Accounting Principles (GAAP).