Wet Paint Company signed a ten-year lease agreement on January 1, 2015. The lease requires payments of
$65,000 per year every December 31. Wet Paint estimates that the leased property has a life of 11 years. The interest rate that applies to the lease is 12%.
REQUIRED:
1. Should Wet Paint Company treat the lease as an operating lease or a capital lease?
2. If a balance sheet is presented on January 1, 2015, what amounts related to the lease will appear on the balance sheet?
3. Assume that the leased asset is depreciated using the straight-line method and the lease is amortized using the effective interest method. Identify the accounting equation effects for Wet Paint's transactions on December 31, 2015?

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The Answer of Wet Paint Company signed a ten-year lease agreement on January 1, 2015. The lease requires payments of
$65,000 per year every December 31. Wet Paint estimates that the leased property has a life of 11 years. The interest rate that applies to the lease is 12%.
REQUIRED:
1. Should Wet Paint Company treat the lease as an operating lease or a capital lease?
2. If a balance sheet is presented on January 1, 2015, what amounts related to the lease will appear on the balance sheet?
3. Assume that the leased asset is depreciated using the straight-line method and the lease is amortized using the effective interest method. Identify the accounting equation effects for Wet Paint's transactions on December 31, 2015?

Wet Paint Company Signed a Ten-Year Lease Agreement on January