A company leases an asset for a 7-year period under a capital lease and agrees to pay an annual rental of $15,000. The initial entry to record this transaction, assuming the present value of the lease payments is $84,000, would include

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Since the lease agreement is a capital lease, it is treated as if the company has purchased an asset and financed it through a loan. Therefore, the initial entry would be a debit to Lease Asset for the present value of the lease payments, which is $84,000, and a credit to Lease Liability for the same amount. There is no immediate expense recognition, as lease payments are treated as a reduction of the lease liability and interest expense over the life of the lease. Therefore, choices A, B, and D are not correct.

A Company Leases an Asset for a 7-Year Period Under