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Capital Leases Arlessee accounts for a capital lease by: a. Recording the future value of the minimum lease payments as both an asset and a
Capital Leases Arlessee accounts for a capital lease by: a. Recording the future value of the minimum lease payments as both an asset and a liability. b. Depreciating the leased asset over its economic life when there's a bargain purchase option. c. Recognizing a portion of each lease payment as an increase in the leased asset. d. Recognizing a portion of each payment as depreciation expense. Calculator Capital Lease Instructions Chart of Accounts General Journal Instructions Garvey Company (the lessee) entered into an equipment lease with Richie Company (the lessor) on January 1 of Year 1. 1. The equipment reverts back to the lessor at the end of the lease, and there is no bargain purchase option 2. The lease term is 5 years and requires Garvey to make annual payments of $65.949.37 at the beginning of each year. 3. The discount rate is 10%, which is implicit in the lease. Garvey knows this, and this rate is lower than its incremental borrowing rate 4. The equipment's fair value at the lease inception is $275,000. The present value of an ordinary annuity of five payments of $65.949.37 each at 10% is $275,000 5. The equipment has an estimated economic life of 7 years and has zero residual value at the end of this time. Straight-line depreciation is used for similar assets. Required: Prepare the journal entries thar Garvey Company would make in the first year of the lease assuming the lease is classified as a capitalase
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