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.

C. Assume that the lease is capitalized. Calculate the amount of the lease equipment (asset) that should be charged to the balance sheet at December 31, Year 3?

D. Assume that the lease is an operating lease. Calculate the total expense that should be charged to the income statement for Year 2?