On December 31, 20X0, the Jackson Building Maintenance Services acquired cleaning equipment on a capital lease for three annual lease payments of $30,000 each on December 31, 20X1, 20X2, and 20X3. The implicit interest rate was 10% compounded annually.
1. Compute the present value of the capital lease.
2. Prepare journal entries at the inception of the lease on December 31, 20X0, and for each of the 3 years. Distinguish between the short and long-term classifications of the lease liability.