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On January1, Year1, Burton Company leases equipment from Nelson Company and agrees to pay an annual lease payment of $10,000 over the lease term of

On January1, Year1, Burton Company leases equipment from Nelson Company and agrees to pay an annual lease payment of $10,000 over the lease term of five years. The lessors interest rate in the lease is 8%. The useful life of the equipment is five years, with no salvage value. Burton uses the straight - line method for depreciation expense. The present value of an annual lease payment of $1 (at 8%) is $3.993.

A. Construct the amortization schedule the Burton Company should prepare for the lease contract. Please explain.

B. Assume that the lease is capitalized. Calculate the total expense (iinterest expense and depreciation expense) that should be charged to the income statement for Year 2?

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