On January 1 of year 1, Falk Company signed a contract to lease space in a building for 3 years. The lease contract calls for annual (prepaid) rental payments of $141,000 on each January 1 throughout the life of the lease and for the lessee to pay for all additions and improvements to the leased property. Present value of the three lease payments is $392,400.

Required:

1. Assume the lease is accounted for as a finance lease. Prepare entries for Falk to record (a) the lease asset and obligation at January 1, Year 1, and (b) the $130,800 per year straight-line amortization at December 31 of Year 1, 2, and 3.

a).Record lease asset and obligation.

b).Record annual amortization of RoU asset.

Required:

2.Assume the lease is accounted for as an operating lease. Prepare entries for Falk to record (a) the lease asset and obligation at January 1, Year 1, and (b) the annual straight-line amortization at December 31 of Year 1, 2, and 3 equal to $140,986, $120,872, and $130,542, respectively. (Do not round your intermediate calculations.)

a).Record the lease asset and obligation at January 1, Year 1.

b).Record the annual straight-line amortization at December 31 of Year 1.

c).Record the annual straight-line amortization at December 31 of Year 2

d).Record the annual straight-line amortization at December 31 of Year 3.