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Question(s) / Instruction(s):

Hartel (lessee) signs a ten-year capital lease for office equipment with a $27,000 annual lease payment. The present value of the five annual lease payments is $173,277, based on a 9% interest rate.

Required:

1.            Prepare the journal entry Hartel will record at inception of the lease.

2.            If the leased asset has a 10-year useful life with no salvage value, prepare the journal entry Hartel will record each year to recognize depreciation expense related to the leased asset.

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