Roscoe Corporation leased computer equipment from Eastern Leasing Corporation on January 1, 2017. The equipment had an expected life of 5 years and a fair market value of $30,000. The lease had the following terms:

1. Lease payments are $7,300 per year, paid each December 31.
2. Insurance and maintenance costs included in the lease payments amount to $100 annually.
3. At the end of the lease term, the computer equipment reverts to Eastern Leasing Corporation.
4. The lease term is 5 years.

Roscoe has an incremental borrowing rate of 8% and has not been told of the interest rate implicit in the lease. Roscoe uses straight-line depreciation, has a December 31 fiscal year-end and follows ASPE. Round each answer to the nearest dollar and nearest percent. Use the rounded answer in any following calculations.(show the process how you got the final answer)

a) Is this a capital lease or an operating lease for Roscoe?

Present value =

A transfer of title occurs =(select one)

Present value versus fair value =

Lease term versus economic life =

Type of lease =(select one)

b) Prepare an amortization schedule showing how the lease liability reduces over time.

year	payment	Interest at 8%	principal	Balance
Jan 12,2017
2017
2018
2019
2020
2021

c) Prepare journal entries for the first two years of the lease (for the lessee). Enter an appropriate description when entering the transactions in the journal. Dates must be entered in the format dd/mmm (ie. January 15 would be 15/Jan).

2017(three entries) ,2018 (two entries)

d) How much interest expense would be recognized in the 2017 and 2018 fiscal years if the lease had been dated July 1, 2017?

Interest expense, 2017 =

Interest expense, 2018 =