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Lease Versus Purchase Hollingsworth Corporation can either lease or buy a small garage next to its business. It will provide parking for its customers. The
Lease Versus Purchase Hollingsworth Corporation can either lease or buy a small garage next to its business. It will provide parking for its customers. The company can lease the building for a period of 12 years, which approximates the useful life of the facility and thus qualifies as a capital lease. The terms of the lease are payments of $24,000 for 12 years. Hollingsworth is currently able to borrow money at a long-term interest rate of 9 percent to lease. The company can purchase the equipment by signing a $180,000 long-term note with monthly payments of $2,000. The mortgage rate carries an interest rate of 12 percent. REQUIRED 1. With regard to the lease option: a. Calculate the present value of the lease. (Round to nearest dollar) b. Prepare the journal entry to record the lease agreement. c.Prepare the journal entry to record depreciation of the building for the first year using the straight-line method. d. Prepare the journal entries to record the lease payments for the first two years 2. With regard to the purchase option: a. Prepare a monthly payment schedule showing the monthly payment, the interest for the month, the reduction in debt, and the unpaid balance for the first three months. (Round to nearest dollar) (round interest rate to two decimal places) payments. 3. Based on your calculations, which option seems to be best? A one or two sentence answer will suffice
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