On January 1, Smith Manufacturing leased equipment from Lebowitz Leasing. Information concerning the lease is as follows:

Noncancelable lease, three equal annual payments of $11,000 each

Payments due annually beginning December 31Estimated economic life of equipment, 4 years

Fair market value of the equipment at lease inception is $31,000Implicit interest rate used in the lease agreement, 7%

Straight-line depreciation used

A. What type of lease is this for Smith Manufacturing? Explain in terms of the lease criteria.

B.Assume the lease is a capital lease. At what amount will the leased equipment be recorded on the lease inception date in Smith Manufacturings accounting records?

C.How much of the first payment is interest expense?

D. How much depreciation expense will Smith Manufacturingrecognize during the first year assuming zero salvage value?