Erica Corp., who reports under ASPE, leases machinery on January 1, 2020, and records this as a capital lease. Seven annual lease payments of $ 140,000 are required the end of each year, starting December 31, 2020. The present value of the lease payments are calculated using 10%. Title passes to Erica at the end of the lease.

Erica uses the effective interest method of amortization for the lease. The company uses straight-line depreciation. The equipments expected useful life of eight years, with no residual value.

Instructions (Round values to the nearest dollar.)

1. What type of lease is this for the lessee? What is your rationale?

1. Prepare a lease amortization table for 2020 and 2021.
2. Prepare the general journal entries relating to this lease for 2020.