Flyer (lessee) signs a five-year capital lease for office equipment with a $20,000 annual lease payment. The

Question:

Flyer (lessee) signs a five-year capital lease for office equipment with a $20,000 annual lease payment. The present value of the five annual lease payments is $82,000, based on a 7% interest rate.
1. Prepare the journal entry Flyer will record at inception of the lease.
2. If the leased asset has a five-year useful life with no , prepare the journal entry Flyer will record each year to recognize depreciation expense related to the leased asset.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...