Germane Inc. (President, John Apropos) enters into a lease agreement to acquire the use of a piece of equipment beginning on January 1, 2010. The lease requires four annual payments of $28,679 starting on January 1, 2010.

a.

What is the amount reported as a leased asset on the B/S on Jan. 1, 2010? What is the depreciation expense for fiscal year 2010?

b.

What is the amount of the lease liability reported on the B/S on Jan. 1, 2010? What interest expense is reported for fiscal year 2010?

c.

What is the amount of the lease liability reported on the B/S on Dec. 31, 2010? What interest expense is reported for fiscal year 2011?

d.

Under operating lease method, what amount of expenses would be reported on I/S for fiscal year 2010 and 2011? How does this expense compare to the expenses reported under a capital lease?

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