Transport Corporation signs an agreement on January 2, 2020 to lease trucks for a six-year period. The current market value of the trucks on January 2 is $480,000. The lease agreement calls for annual payments of $80,117. The first payment is made on January 2, 2020, all other payments are made on December 31 of each year. The lease agreement calls for a 8% interest rate. The estimated remaining life of the delivery equipment is six years with a residual value of $10,000. Ownership of the delivery equipment will transfer to Warren Corporation at the end of the lease term.

Required:

a)Prepare the journal entry on January 2, 2020, to record the lease agreement and the first lease payment.

b)Prepare the entry on December 31, 2020, to record the amortization expense.