GHI Inc. entered into a lease agreement on January 1, 2024, for equipment with an expected economic life of 10 years. The lease term is 5 years with annual payments of $50,000, payable at the beginning of each year. The interest rate implicit in the lease is 6%, and the present value of lease payments is $211,000.
- Determine whether the lease is a finance lease or an operating lease under the new accounting standards. Prepare the journal entries for the lease inception and the first year’s payments and expenses. Discuss the impact of the lease on GHI Inc.’s balance sheet and income statement.