On January 2, 2021, Benchmark Company leased equipment for a period of three years. The

economic life of the asset is five years. On January 2, the first lease payment of $435,000 was

paid. On December 31, the second lease payment of $435,000 was paid. For the second

payment, $145,000 represented interest expense; the remaining $290,000 represented a reduction

in principal.

REQUIRED:

1. If the lease is an operating lease for Benchmark Company, how do the lease payments affect

their statement of cash flow at the end of 2021? If the lessor also classifies the lease as an

operating lease, how do the lease payments affect their statement of cash flow at the end of 2021?

2. Alternatively, if the lease is a finance lease for Benchmark Company, how do the lease

payments affect their statement of cash flow at the end of 2021? If the lessor also classifies the

lease as a sales-type lease, how do the lease payments affect their statement of cash flow at the

end of 2021?