Question
. On December 31, Year One, the Abertion Company decides to lease a piece of equipment rather than buy it. The lease is for 10
. On December 31, Year One, the Abertion Company decides to lease a piece of equipment rather than buy it. The lease is for 10 years. Payments are $22,000 each December 31 beginning on December 31, Year One. Abertion has an annual incremental borrowing rate of 9 percent. The present value of an annuity due of $1 at 9 percent for 10 periods is $6.99525. a. Assume this lease is an operating lease. What journal entries are made in Year One and Year Two? b. Assume this lease is an operating lease. What is shown on the companys balance sheet at the end of Year Two? c. Assume this lease is a capital lease. What journal entries are made in Year One and Year Two? d. Assume this lease is a capital lease. What is shown on the companys balance sheet at the end of Year Two?
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