On January 1, 2008, Muske Trucking Compay leased a semitractor and trailer for five years. Annual payments of $28,300 are to be made every December 31 beginning December 31, 2008. Interest expense is based on a rate of 8%. The present value of the minimum lease payments is $113,000 and has been determined to be greater than 90% of the fair market value of the asset of January 1, 2008. Muske uses straight line depreciation on all assets.
Required:
1. Prepare a table similar to Exhibit 10-7 to show the five-year amortization of the lease obligation.
2. Identify and analyze the effect of the lease signing on January 1, 2008
3. Identify and analyze the effect of all transactions on December 31, 2009 (the second year of the lease).
4. Prepare a balance sheet presentation as of December 31, 2009 for the lease asset and the lease obligation.