On December 31 of the first year, a Company signed a five-year lease to take delivery of a new aircraft. The lease requires annual payments of $100,000 per year with the first payment due immediately. Company officials are unsure whether this contract is an operating lease or a finance lease.

	Questions to answer	Operating Lease	Financial Leasing
1.	What is reported as liability as of December 31 of year one? Explain.
2.	What is reported in the second year in the income statement? Explain