On January 1, 2020, Lessee Company entered into a 4-year equipment lease (with no renewal options) requiring payments of $10,000, with the first payment due immediately. Lessees incremental borrowing rate is 5%. Ownership of the equipment remains with the lessor at expiration of the lease. There is no option to purchase the property at the end of the lease term and the equipment is expected to have no residual value. The equipment has an estimated economic life of 5 years.

Use this information for the next 2 questions.

35What is the balance of the lease liability at the start of the lease (before any payments have been made)?

$36,441

$35,460

$40,000

$36,000

$37,232

36The entry on 12/31/2020 to record interest:

Debits Lease Liability for $1,862

Debits Interest Expense for $1,862

Debits Lease Liability for $1,362

Credits Interest Payable for $1,362

Debits Interest Expense for $1,362