Micro Inc. uses computer monitoring devices for manufacturing quality control. Because the type and speed of manufacturing vary from year to year, Micro has entered into a three-year lease of monitoring equipment. The equipment has a $100,000 market value and a 10-year useful life. The lease, signed on December 31, 2003, specifies that there is no title transfer or bargain purchase option at the end of the lease on December 31, 2006. Micro does not guarantee any residual value. The lessor has set the lease payments at $25,106, with the first payment due December 31, 2004. Micro doesn’t know the implicit rate of the lessor; Micro’s incremental borrowing rate is 12%. Micro uses straight-line depreciation.

Journal entry option: Prepare any 2003 journey entries related to the lease. Also, make the December 31, 2006, journal entry at the end of the lease. You can round the number if necessary.

USE:

Statement of Cash Flows (cash outflows in parentheses)

	Year 1	Year 2	Year 3	Year 4	Etc.
Operating Activities
Investment Activities
Financing Activities
Separate Schedule of “Significant Investing and Financing Activities Not involving cash”

Income statement

	Year 1	Year 2	Year 3	Year 4	Etc.
Operating expenses
Financial revenues, expenses, gains, and losses

Balance sheet December 31

	Year 1	Year 2	Year 3	Year 4	Etc.
Assets
Liabilities
Owner's Equity