Two independent situations follow:
1. Ready Car Rental leased a car to Dumfries Company for one year. Terms of the lease agreement call for monthly payments of $750, beginning on May 21, 2014.
2. On January 1, 2014, InSynch Ltd. entered into an agreement to lease 60 computers from HiTech Electronics. The terms of the lease agreement require three annual payments of $43,737 (including 5.5% interest), beginning on December 31, 2014. The present value of the three payments is $118,000 and the market value of the computers is $120,000.
Instructions
(a) What kind of lease-operating or finance-should be recorded in each of the above situations? Explain your rationale.
(b) Prepare the journal entry, if any, that each company must make to record the lease agreement.