Financial Statement Impact of a Lease On January 1, 2014, Muske Trucking Company leased a semitractor and trailer for five years. Annual payments of $28,300 are to be made every December 31 beginning December 31, 2014. Interest expense is based on a rate of 8%. The present value of the minimum lease payments is $112,994 and has been determined to be greater than 90% of the fair market value of the asset on January 1, 2014. Muske uses straight-line depreciation on all assets. Required: Hide 1. Prepare a table similar to Exhibit 10-7 to show the five-year amortization of the lease obligation. Enter all amounts as positive numbers. If required, round all calculations and answers to the nearest dollar. *Note: Due to rounding you will have to adjust the interest expense for 12/31/18 to result in a zero balance for the lease obligation. Muske Trucking Company Effective Interest Method of Amortization Date Lease Payment Interest Expense 8% Reduction of Obligation Lease Obligation 1/01/14 $ 12/31/14 $ $ $ 12/31/15 12/31/16 12/31/17 12/31/18 0 2. Identify and analyze the effect of the lease transaction on January 1, 2014. Activity Accounts Statement(s) How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Revenues Expenses = Net Income 3. Identify and analyze the effect of all of the transactions on December 31, 2015 (the second year of the lease). a. For Interest Expense: Activity Accounts Statement(s) How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Revenues Expenses = Net Income b. For Depreciation Expense: Activity Accounts Statement(s) How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. For depreciation expense: Round the asset value up to the next thousand dollar value before calculating annual depreciation, i.e. $113,000. Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Revenues Expenses = Net Income Hide 4. Prepare the balance sheet presentation as of December 31, 2015, for the leased asset and the lease obligation. Muske Trucking Company Balance Sheet (Partial) December 31, 2015 Long-term assets: $ $ Current liabilities: $ Long-term liabilities: $