Bristol Company leased machinery from Harvard Leasing Company on January 1, 2010. The noncancellable lease term is 4 years. The following data relate to this lease:

1. Harvard purchased the equipment for $363,950 at a cost equal to its fair market value.

2. The economic life of the machinery is 6 years with no salvage value at the end of 6 years.

3. Payments are on January 1 of each year starting in 2010 (an annuity due)

4. The annual rental payment is $100,000 which includes $8,000 per year to cover executory costs paid by Harvard Leasing. (i.e. the minimum lease payment is $92,000)

5. At the end of the lease term the equipment will be returned to Harvard Leasing with an estimated residual value of $40,000.

6. Bristol's incremental borrowing rate per year is 10%

7. Future costs associated with this lease are completely predictable and no uncertainties exist about collectability of the lease payments.

8. The implicit annual interest rate is 7.00%

Develop a capital vs. operating leasing schedule starting with the year 2010. Note that the guaranteed residual value is like a salvage value for the depreciation part. Straight-line depreciation should be used.

Capital Lease					Operating Lease
Year	Depreciation	Executory Costs	Interest	Total Charge	Operating Lease Charge	Difference