Fold and Hold Corporation Entered into a Capital Lease for Equipment

Essay

Fold and Hold Corporation entered into a capital lease for equipment, which had a current cash equivalent cost of $38,971 on January 1, 2016. Fold and Hold paid cash of $10,000 on the date of entering into the lease, and promised to pay the balance in six equal annual installments on each December 31 beginning with December 31, 2016. The lease contained a 10% interest rate on the unpaid balance.
Required:
A.Prepare the journal entry to record the capital lease on January 1, 2016.
B.Prepare the entry to record the first installment payment on December 31, 2016 (round to the nearest dollar).Assume that no adjusting entries have been made during the year.