On December 31, Year One, the Lurch Company decides to lease a piece of equipment rather than buy it. The lease is for 7 years. Payments are $70,000 every December 31 beginning on December 31, Year One. The implicit rate is 8 percent and is known by Lurch.
Required:
A. Assume this lease is classified as a finance lease. What journal entries are made in Year One and Year two?
B. Assume this lease is classified as an operating lease. What journal entries are made in Year One and Year two?
Your answers to this open-ended assignment should be placed in the space below this line.
A	Assuming the lease is a finance lease:
	Date	Account Name		Debit	Credit
	Dec. 31, Year One
	Dec. 31, Year One
	Dec. 31, Year Two
	Dec. 31, Year Two
	Dec. 31, Year Two
B	Assuming the lease is an operating lease:
	Date	Account Name		Debit	Credit
	Dec. 31, Year One
	Dec. 31, Year One
	Dec. 31, Year Two
	Dec. 31, Year Two