On January 2, 2015, Easor Corporation leased some equipment to Easee Corporation. Both coporations are on a calendar year. This equipment had cost Easor $45,000.

There were no other significant costs associated with the lease. Easor appropriately accounted for this transaction as lease equivalent to a sale, and Easee appropriately treated it as a capitalized lease under an installment purchase. The lease is for a non-cancelable term of 8 years with $10,000 RENT PAYABLE at the beginning each of year. Easee made the first payment on January 2, 2015. The implicit interest rate is 10%, and the present value of annuity of $1 in advance for 8 years at 10% is $5.868. The interest method of amortization is used. The equipment is expected to have a 10 year life, no salvage value, and be depreciated on a straight-line basis.

1. What journal entry should Easor have made on January 2, 2015 to reflect the transaction as a lease equivalent to a sale?

2. What journal entry should Easor have made on January 2, 2015, if this lease were to have been accounted for as an operating lease?

3. Assume that Easee treated this transaction as an operating lease rather than as a purchase of this equipment. By how much would 2015 income before income taxes differ between these two methods?

A. Zero

B. $736 

C. $4,136 

D. $5,132

Answer rating: 100% (QA)

The detailed answer for the above question is provided below 1 The journal entry that Easor should h... View the full answer