Michael Enterprises leased a machine on June 1, 2012, under a 10-year lease. The economic life of the machine is estimated to be 12 years. Title to the machine passes to Michael Enterprises at the expiration of the lease, and thus, the lease is a capital lease. The lease payments are $100,000 per year, including executory costs of $4,000 per year, all payable in advance annually. The incremental borrowing rate of the company is 10%, and the lessor’s implicit interest rate is unknown. Michael Enterprises uses the straight-line method of amortization and the calendar year for reporting purposes.
A. Give all entries on the books of the lessee relating to the lease for 2012.