Lessee rents a building for a 3-year period at an annual rental of $10,000 beginning immediately. In addition, Lessee also agrees to pay annual maintenance and insurance fees of $1,000. The building has a 3-year life with no salvage value at the end of its life. Lessor's interest rate is 10%, which is known to Lessee.
(a) What kind of costs are these maintenance and insurance fees?
(b) What type of lease is this to Lessee?
(c) Should Lessee capitalize this lease? If yes, for how much?
(d) What entries would Lessee prepare for the first year?