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Keller Corporation (the lessee) entered into a general equipment lease with Dallo Company (the lessor)...

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Accounting

Keller Corporation (the lessee) entered into a general equipment lease with Dallo Company (the lessor) on January 1 of Year 1. The following information pertains to this lease agreement:

1. The equipment reverts back to the lessor at the end of the lease, and there is no bargain purchase option.
2. The lease term is 8 years and requires annual payments of $10,000 at the beginning of each year.
3. The fair value of the equipment at lease inception is $100,000. Assume that the present value of lease payments discounted at a 10% interest rate is $58,684.19.
4. The equipment has an estimated economic life of 20 years and has zero residual value at the end of this time.

Required:

Prepare the journal entry that Keller Corporation would make during the first year of the lease assuming that the lease is classified as an operating lease.

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