(Accounting for leases, LO 5) On February 1, 2005 Flatwater Ltd. (Flatwater) signed a five-year lease for four delivery trucks. According to the terms of the lease, Flatwater must make annual lease payments of $35,000 on January 31, commenc- ing in 2006. The interest rate that applies to the lease is 9%.

Required:

a. If Flatwater’s lease were accounted for as an operating lease, what amount would be recorded as an asset for the leased delivery trucks on February 1, 2005?

b. If the lease were accounted for as an operating lease, prepare the journal entries that would have to be made in fiscal 2006 and fiscal 2008 to account for the lease.

c. If Flatwater’s lease were accounted for as a capital lease, what amount would be recorded as an asset for the leased delivery trucks on February 1, 2005?

d. If the lease were accounted for as a capital lease, what journal entry would be required on February 1, 2005?

e. If the lease were accounted for as a capital lease, what journal entries would be required on January 31, 2006 to record the lease payment?

f. If the lease were accounted for as a capital lease, what journal entry would be required on January 31, 2006 to record the amortization of the delivery vehicles?

g. What would be the NBV of the leased delivery trucks and the lease liability on Flatwater’s January 31, 2006 balance sheet?