On Jan.1, 2009, L Company leases a computer. The lease contract calls for 2 lease payments: $1,000 on December 31, 2009 and $1,000 on December 31, 2010. The title of the computer willre main with the lessor. There is no purchase option at the end of the lease. The estimated life of the computer is 3 years. The fair market value of the computer is $2,000. The appropriate discountrate is 10%.
a. Is this a capital or an operating lease? Why?
b. Assuming it is an operating lease, provide all journal entries related to the lease for the lessee, indicating the date of the journal entry.
c. Assuming it is a capital lease, provide all journal entries related to the lease for the lessee, indicating the date of the journal entry.
d. Why might the lessee prefer that the lease be an operating lease?