On January 1, 2013, Daisy Corporation leased equipment, agreeing to pay $8,200 e

Question

On January 1, 2013, Daisy Corporation leased equipment, agreeing to pay $8,200 every December 31 for the entire four years of the lease. The present value of the lease payments, at 5% interest is $29,077 The lease is considered a capital lease. How would the company record this transaction? O Debit Rental Expense for $29,077 and credit Cash for $29,077 O Debit Rental Expense for $8.200 and credit Cash for $8,200 O Debit Leased Assets for $29.077 and credit Lease Liability for $29,077 O Debit Leased Assets for $32.800 and credit Lease Liability for $32.800 O Debit Interest Expense $7,837, debit Lease Liability for $363, and credit Cash for $8,200o.

Explanation / Answer

Since this a capital lease the transaction is to recorded as if purchase & sale of asset is undertaken between the parties.

Acordingly, the lessee will record the asset in its books & record lease liability towards payment of lease liability. The asset & lease liability is recorded at present value of lease payments.

Hence, in this case asset will be debited by $29,077 and lease liability will be credited by $ 29,077.

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