On January 3, 2020, Hanna Corporation signed a lease on a machine for its manufacturing operation and the lease commences on the same date. The lease requires Hanna to make six annual lease payments of $11,000 with the first payment due December 31,2020. Hanna could have financed the machine by borrowing the purchase price at an interest rate of 7%.

a. Prepare the journal entries that Hanna Corporation would make on January 3 and December 31, 2020, to record this lease assuming. i. the lease is reported as an operating lease. ii. the lease is reported as a finance lease. b. Post the journal entries of part a to the appropriate T-accounts. c. Show how the entries posted in part b would affect the financial statements using the financial statement effects template.

Note: Round answers to the nearest dollar. Use rounded answers for subsequent computations.

i. The lease is reported as an operating lease. Date Description Debit Credit 1/3/19 0 0 O O O O 12/31/19 0 " 0 0 O O 0 Accumulated amortization - finance lease 12/31/19 Amortization expense - finance lease Cash Finance lease liability Interest expense Operating lease expense Operating lease liability Right-of-use asset - operating lease Right-of-use lease asset - finance lease ii. The least 1 rcpurttu as a marca icaze. Debit Credit . 0 0 0 Date Description 1/3/19 Right-of-use lease asset - finance lease Finance lease liability 12/31/19 Amortization expense - finance lease Accumulated amortization - finance lease 12/31/19 Interest expense Finance lease liability Cash O O O O O O O 0 0 0 0 i. the lease is reported as an operating lease. Operating Lease Liability 0 Cash Lease Expense Right-of-use Asset-Operating Lease 0 0 0 11000 0 0 0 ii. the lease is reported as a finance lease. Cash Finance Accu ulated Amortiza ease Liability 0 0 Right-of-use Asset-Finance 0 0 0 Interest Expense Amortization Expense 0 0 0 0 Note: Use negative signs with your answers, when appropriate. i. the lease is reported as an operating lease. Balance Sheet Noncash Contra Assets Assets Earned Capital Income Statement Net Revenues Expenses Income 0 0 Contributed Capital 0 Cash Asset Liabilities 0 0 0 0 0 0 Transactions Operating leasecommences. Lease payment. Record leaseexpense andchanges to assetand liability. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ii. the lease is reported as a finance lease. Balance Sheet Noncash Contra Transactions Cash Asset Assets Assets Finance leasecommences. 0 0 Amortization ofleased asset. 0 0 Made annualpayment. 0 0 Contributed Capital 0 Liabilities Income Statement Net Revenues Expenses Income 0 0 0 Earned Capital 0 0 0 0 0 0 0 0 o 0 0 0 0 0 0 0 0 i. The lease is reported as an operating lease. Date Description Debit Credit 1/3/19 0 0 O O O O 12/31/19 0 " 0 0 O O 0 Accumulated amortization - finance lease 12/31/19 Amortization expense - finance lease Cash Finance lease liability Interest expense Operating lease expense Operating lease liability Right-of-use asset - operating lease Right-of-use lease asset - finance lease ii. The least 1 rcpurttu as a marca icaze. Debit Credit . 0 0 0 Date Description 1/3/19 Right-of-use lease asset - finance lease Finance lease liability 12/31/19 Amortization expense - finance lease Accumulated amortization - finance lease 12/31/19 Interest expense Finance lease liability Cash O O O O O O O 0 0 0 0 i. the lease is reported as an operating lease. Operating Lease Liability 0 Cash Lease Expense Right-of-use Asset-Operating Lease 0 0 0 11000 0 0 0 ii. the lease is reported as a finance lease. Cash Finance Accu ulated Amortiza ease Liability 0 0 Right-of-use Asset-Finance 0 0 0 Interest Expense Amortization Expense 0 0 0 0 Note: Use negative signs with your answers, when appropriate. i. the lease is reported as an operating lease. Balance Sheet Noncash Contra Assets Assets Earned Capital Income Statement Net Revenues Expenses Income 0 0 Contributed Capital 0 Cash Asset Liabilities 0 0 0 0 0 0 Transactions Operating leasecommences. Lease payment. Record leaseexpense andchanges to assetand liability. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ii. the lease is reported as a finance lease. Balance Sheet Noncash Contra Transactions Cash Asset Assets Assets Finance leasecommences. 0 0 Amortization ofleased asset. 0 0 Made annualpayment. 0 0 Contributed Capital 0 Liabilities Income Statement Net Revenues Expenses Income 0 0 0 Earned Capital 0 0 0 0 0 0 0 0 o 0 0 0 0 0 0 0 0