On February 1, 2014, Flatwater Ltd. (Flatwater) signed a four-year lease for computer equipment. The terms of the lease require Flatwater to make annual lease payments of $120,000 on January 31, commencing in 2015. The interest rate that applies to the lease is 7 percent.

Required:.

a. Assume Flatwater’s lease was accounted for as an operating lease: .

i. What amount would be recorded as an asset for the leased equipment on '

February 1,2014?

ii. Prepare the journal entries that would have to be made in fiscal 2015 and fiscal |}

2017 to account for the lease.

b. Assume Flatwater’s lease was accounted for as a capital lease: |

i. What amount would be recorded as an asset for the computer equipment on February 1, 2014?

ii. What journal entry would be required on February 1, 2014?

iii. What journal entries would be required on January 31, 2015 to record the lease payment?

iv. What journal entry would be required on January 31, 2015 to record the depreciation of the computer equipment (assume straight-line depreciation and no residual value)?

v. What would be the carrying amount of the computer equipment and the lease liability on Flatwater’s January 31, 2015 and 2017 balance sheets?