On January 1, 2007, Jamona Corp. signed a 5-year, noncancelable lease for a machine. The terms of the lease called for Jamona to make annual payments of $8,668 at the beginning of each year, starting January 1, 2007. The machine has an estimated useful life of 6 years and a $5,000 unguaranteed residual value. The machine reverts to the lessor at the end of the lease term. Jamona uses the straight-line method of depreciation for all of its plant assets. Jamona's incremental borrowing rate is 10%, and the lessor's implicit rate is unknown.
• Determine how this lease would qualify as a capital lease.
• Prepare the amortization table for the lease and the entries for signing the lease on 1/1/07, the lease payment on 1/1/07, the interest recognition and lease payment for 12/31/07, and the depreciation entry for 12/31/07.
• Prepare appropriate note disclosure.