Algoma, Inc., signs a five-year lease for office equipment with Office Solutions. The present value of the lease payments is $15,499. Prepare the journal entry that Algoma records at the inception of this finance lease.

Dr. Lease asset office equipment $15,499

Cr. Lease Liability $15,499

Explanation:

A capital lease is a lease between two parties in which a party transfer leases asset to in exchange of lease payments.

To make a lease finance lease following criteria must be fulfilled.

The asset will be transferred to lessee at the end of lease period Agreement must contain bargain purchase option Lease period must be 75% or more of useful life of asset Value of lease must be equal or more than the market value of asset