Kanodia Co. leased some equipment on January 1, 2016. The company signed a 5-year lease for the equipment, whereby Kanodia must make annual payments of $2,000 at the end of each year. The market interest rate is 8%. The market value for the equipment is $8,900.

Is this a capital lease or an operating lease? If it's a capital lease, record the initial entry; if it's an operating lease, record the year-end entry for the first year.