Harbor (lessee) signs a five-year capital lease for office equipment with a $10,000 annual lease payment. The present value of the five annual lease payments is $41,000, based on a 7% interest rate.
1. Prepare the journal entry Harbor will record at inception of the lease.
2. If the leased asset has a five-year useful life with no salvage value, prepare the journal entry Harbor will record each year to recognize depreciation expense related to the leased asset.