Montana Company signs a five-year capital lease with Elway Company for office equipment. The annual lease payment is $20,000, and the interest rate is 8%.

Required
1. Compute the present value of Montana€™s five-year lease payments.
2. Prepare the journal entry to record Montana€™s capital lease at its inception.
3. Complete a lease payment schedule for the five years of the lease with the following headings. Assume that the beginning balance of the lease liability (present value of lease payments) is $79,854.

4. Use straight-line depreciation and prepare the journal entry to depreciate the leased asset at the end of year 1. Assume zero salvage value and a five-year life for the officeequipment.

Transcribed Image Text:

Beginning Period Endreg Date Ending Balance of Lease Liability Balance of Interest on Reduction of Lease Liability Lease Liability Lease Liability Cash Lease Payment