A lease agreement for equipment requires Granger Transport Ltd. to make 10 annual payments of $40,000, with the first payment due on January 2, 2020, the date of the inception of the lease.

Required
1. Journalize the following lessee transactions assuming that it is a capital lease:

2020

Jan. 2 Beginning of lease term and first annual payment. The present value of the nine future lease payments at 10 percent is $230,361.

Dec. 31 Amortization of equipment (10 percent).

31 Interest expense on lease liability.

2021

Jan. 2 Second annual lease payment.

2. Assume now that this is an operating lease. Journalize the January 2, 2020, lease payment.