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Krawczek Company will enter into a lease agreement with Heavy Equipment...

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Accounting

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Krawczek Company will enter into a lease agreement with Heavy Equipment Company where Krawczek will make lease puyments over the next five years. The lease is cancelable and requires equal arnual payments of $27,200 per year beginning on fanuary 1 or the first yeat. The last payment will be January 1 of year 5 , and Krawczek will continue to use the asset unil December 31 of that year Other important information includes the following - The fair value of the equipment is $185,000 - The applicable discount rate is an 8 percent annual rate - The econornic life of the asset is 10 years - Krawczek does not quarantee the residual value of the asset at the ent of the lease, and it does not expect to keep the asset at the end of the term. - The asset is a standard piece of equipment a. Is thelease an operating lease or a financing lease? Operating lease Financing lease b. What wil be the lease expense shown on the income statement at the end of year I? c. What wul be the interest expense shown on the income statement at the end of yeat P ? Note: Leave no celis blenk - be certain to enter "O wherever required

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