Accounting for Leases (FSET) On January 3, Hanna Corporation signed a lease on a machine for its manufacturing operation and the lease commences on the same date. The lease requires Hanna to make six annual lease payments of $15,000 with the first payment due December 31. Hanna could have financed the machine by borrowing the purchase price at an interest rate of 7%. a. Using the financial statement effects template, report the entries that Hanna Corporation would make on January 3 and December 31 to record this lease assuming i. the lease is reported as an operating lease. ii. the lease is reported as a finance lease. Note: Use negative signs with your answers, when appropriate. Note: Select "N/A" as your answer if a part of the accounting equation is not affected. Note: Round answers to the nearest whole dollar. i. Operating Lease: Transaction Operating lease commences. Lease payment. Record lease expense and changes to asset and liability. ii. Finance Lease: Transaction Finance lease commences. Amortization of leased asset. Made annual lease payment. Cash Asset Cash Asset Noncash Assets b. Explain how the financial statement effects differ between the two treatments. Noncash Assets = = Balance Sheet Contra Assets = Liabilities Contributed Capital Earned Capital Contra Equity Revenue Balance Sheet Contra Assets Liabilities Contributed Capital Earned Capital The amount of expense recognized on the income statement in the early years of a finance lease is expense recognized in the early years of an operating lease. Check = = Income Statement Contra Equity Revenue Expenses