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What is the impact of the lease on income statement

Problem:

On January 1, 2010, Hershey Co. leased a machine for 5 years at an annual rental of $64,000, payable on the date of signing the lease and each December 31 thereafter. The machine has an estimated useful life of 8 years and no salvage value. Hershey Co. has an option to purchase the machine for $1at the end of the lease. The market value of the machine is not known. Hershey's incremental borrowing rate is 8%.

1) What is the present value of the lease?

2) What is the impact of the lease on 2010 income statement and year-end balance sheet?

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Finance Basics: What is the impact of the lease on income statement

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