Accounting for Leases (FSET)On January 3, Hanna Corporation signed a lease on a machine for its manufacturing operation and the lease commences on the same date. The lease requires Hanna to make six annual lease payments of $18,000 with the first payment due December 31. Hanna could have financed the machine by borrowing the purchase price at an interest rate of 7%.a. Using the financial statement effects template, report the entries that Hanna Corporation would make on January 3 and December 31 to record this lease assuming1. the lease is reported as an operating lease.II. the lease is reported as a finance lease.Note: Use negative signs with your answers, when appropriate.Note: Select "NA" as your answer if a part of the accounting equation is not affected.to the nearest• Note: Round answers to the nearest whole dollar.1. Operating Lease:II. Finance Lease:Operating lease commencesLease payment.TransactionRecord lease expense and changes to asset and liability.TransactionFinance lease commencesAmortization of leased asset.Made annual lease paymentCashCheckCashAssetCashNVA(18,000)✓CashAssetN/A(18,000)✔ N/Ab. Explain how the financial statement effects differ between the two treatments.#0✓✔N/ANoncashAssetsRight-of-use asset-finance leaseRight-of-use asset-operating leaseNoncashAssets✔ Right-of-use asset-operating lease85,798 ✔85,798✔✔N/AxContra- Assets -✔✔ContraAssets✔ Accumulated amortizationOperating lease liabilityOperating lease liablityBalance SheetBalance SheetOperating lease liabilityxLiabilities✔✔Finance lease liability85,798 ✔Finance lease liability(18,000)Liabilities6,006✔The amount of expense recognized on the income statement in the early years of a finance lease is greater than ✔ expense recognized in the early years of an operating lease.=#✔N/A#v85,798 ✔xContributedCapitalContributed+ Capital.✓NVA0✓Retained earningsN/AEarnedCapitalRetained earningsEarnedCapitalRetained earningsxx✔✔0✔xContra- Equity✔ContraEquity Revenue.N/AIncome StatementRevenueExpensesAmortization expenseInterest expenseX#xIncome Statement✔Lease expenseNetIncomexXExpensesNetIncome0x

An operating lease is an agreement where the owner of the asset is called the lessor and the person…

On January 3, Hanna Corporation signed a lease on a machine for its manufacturing operation and the lease commences on the same date. The lease requires Hanna to make six annual lease payments of $18,000 with the first payment due December 31. Hanna could have financed the machine by borrowing the purchase price at an interest rate of 7%. a. Using the financial statement effects template, report the entries that Hanna Corporation would make on January 3 and December 31 to record this lease assuming Lthe lease is reported as an operating lease. the lease is reported as a finance lease. Note: Use negative signs with your answers, when appropriate. Note: Select "NA" as your answer if a part of the accounting equation is not affected. Note: Round answers to the nearest whole dollar. L. Operating Lease: Finance Lease Operating lease commences Lease payment Transaction Record lease expense and changes to asset and ability Transaction Amortization of leased asset Cash Cash Asset Cash NA (18,000) Cash Asset NIA (18,000) ✔NIA Noncash Assets b. Explain how the financial statement effects differ between the two treatments. NIA NA Right-of-use asset-finance lease Right-of use asset-operating leas 85,798 Assets Right-of use asset-operating leas . 85,798 M NIA ou .M K Centra Assets Accumulated amortization Centra Assets Operating ease liability Balance Sheet Balance Sheet Operating as liability Operating ease liablity X Liabities . 85,798 France lease liability (18,000) Liabilities 6,006 . BM The amount of expense recognized on the income statement in the early years of a finance lease is greater than expense recognized in the early years of an operating lease $5 N/A ✔ M . ✓ Contributed Capital Contributed Capital NIA DV Retained earrings NIA Earned Capital Readings Earned Capital Retained earnings DV ✔ x ✔ XI ✓ x • M Contra Equity Contra Equity Revenue. NIA Income Statement Revenue Expenses Amortization expense Interest expense ou # ✔ .✔ Income Statement Lease expense Net Income M Expenses Net Income ex