Digital, Inc., leased computer equipment from Young Leasing Company on January 2, 2012. The terms of the lease required annual payments of $4,141 for five years beginning on December 31, 2012. The interest rate on the lease is 14%.

1. Assuming the lease qualifies as an operating lease, what journal entry would be made on January 2 to record the leased asset?

2. If the lease qualifies as an operating lease, what journal entry would be made when the first payment is made on December 31, 2012?

3. Provide the journal entry made on January 2, 2012, assuming the lease qualifies as a capital lease.

4. Provide the journal entry made on December 31, 2012, to record the first lease payment, assuming a capital lease.

Issuance Price of Bonds