Mackey Company acquired equipment on January 1, 2014, through a leasing agreement that required an annual payment of $30,000. Assume that the lease has a term of five years and that the life of the equipment is also five years. The lease is treated as a capital lease, and the FMV of the equipment is $119,781. Mackey uses the straight-line method to depreciate its fixed assets. The effective annual interest rate on the lease is 8 percent.

REQUIRED:

a. Compute the amounts that would complete the table:

b. Compute rent expense for 2014–2018 if the lease is treated as an operating lease.
c. Compute total expense over the five-year period under the two methods and comment.

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Balance Sheet Value of Equipment Leasehold Obligation Interest Expense Expense Total Expense Depreciation Date 12/31/14 12/31/15 12/31/16 12/31/17 12/31/18