MUHC Ltd. leased a microsurgical staple gun on January 1, 2020, from George Klein Surgical Equipment Ltd. The three-year lease contract called for monthly payments of $10,870 to be made at the end of each month. The staple gun is expected to have a useful life of five years and no residual value. The staple gun had cost George Klein $300,000 to manufacture and would normally have sold for about $450,000. The interest rate available to MUHC Ltd. for equipment loans on the day the lease was signed was 3%. MUHC’s management plans to return the staple gun to George Klein at the end of the three-year lease. MUHC’s management has also determined that the present value of the minimum lease payments was $368,175 at the time the lease was entered into.

Required

Explain the impact that the lease will have in the first month on:

a. MUHC’s statement of financial position

b. MUHC’s statement of income