The owner of the equipment and Eads management negotiated a capital lease agreement. The present value of the lease agreement is $92,000. The contract carried the following terms:
Period of time: 8 years
Interest rate: 8%
Total payment (including principal and interest) due December 31 of each year: $16000
The first two payments of $16,000 are to be allocated to interest and principal as follows (amounts are rounded to the nearest $10)
December 31 20X1 interest= 78360 principal= 8640
December 31 20X2 interest= 6670 principal= 9330
The manager decides to compute depreciation using straight-line depreciation with a life equal to the eight-year contract term and no salvage value.
What are the journal entries to these transactions?