Chapter 14, Problem 18E

To determine

Capital Lease:

Leasing basically means using the assets of another company for purpose of own business. When leasing comes with transfer of ownership if the lease agreement meets certain criteria, it is called a capital lease. The owner of the assets is called lessor and the business or person using the asset is called a lessee.

To determine:

1. Prepare journal entry to be recorded at inception of the lease.

2. Prepare journal entry to record the depreciation expense on the leased asset.