Kemba Incorporated, a private corporation following ASPE, acquired equipment on January 1, 2020 by signing a 5-year lease agreement that requires annual lease payments of $ 24,000 beginning January 1, 2020.

Instructions:

Prepare the journal entries to related to the lease agreement at January 1, 2020 under each of the following independent circumstances:

a) The lease is classified as an operating lease.

b) The lease is classified as a capital lease and the present value of the lease payments has been determined to be $ 100,077. The fair market value of the equipment is $ 105,000.