Equipment Co has been taking bids for three new tractors. Onecompany has made an offer to sell a qualifying model for $41,000each. In addition, Goldbaum has offered to finance the transactionthrough a capital lease over the expected 15-year life of thetractors with no money down. No mention of the size of the required year-end lease payments has been made yet, but Garcia knows thatGodlbaum will expect a 9% return on the lease arrangement.
A. What will be the size of each annual year-end payment?
B. what amount will Garcia capitalize on its balance sheet for the tractors and for the lease obligation? What does this amount represent?
C. How will you record the entry to set up the lease onGarcia's books
D. What total amount will Garcia pay over the life of thelease for financing?
E. Record the entry necessary when Garcia makes the firstlease payment
F. When the second year's lease payment is recorded, will theamount of interest expense be larger or smaller than that for the first year? Explain.