Braun Company signs a five year capital lease with Verdi Company for office equipment. The annual lease payment is $ 20,000, and the interest rate is 10%.
Required:
1. Compute the present value of Braun's lease payments.
2. Prepare the journal entry to record Braun's capital lease at its inception.
3. Complete a lease payment schedule for the five years of the lease with the following headings. Assume that the beginning balance of the lease liability (present value of lease payments) is $ 75,816.
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4. Use straight line depreciation and prepare the journal entry to depreciate the leased asset at the end of year 1. Assume zero salvage value and a five-year life for the officeequipment.