At january 1, 2018, café med leased restaurant equipment from crescent corporation under a nine-year lease agreement. the lease agreement specifies annual payments of $28,000 beginning january 1, 2018, the beginning of the lease, and at each december 31 thereafter through 2025. the equipment was acquired recently by crescent at a cost of $198,000 (its fair value) and was expected to have a useful life of 13 years with no salvage value at the end of its life. (because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $66,277.)

crescent seeks a 11% return on its lease investments. by this arrangement, the lease is deemed to be an operating lease. (fv of $1, pv of $1, fva of $1, pva of $1, fvad of $1 and pvad of $1) (use appropriate factor(s) from the tables provided.)

required:

1. what will be the effect of the lease on crescent’s (lessor’s) earnings for the first year? (enter decreases with negative numbers.)

2. what will be the balances in the balance sheet accounts related to the lease at the end of the first year for crescent?

two years ago, when picking flowers in the mountains back of yosemite valley, i found a book. it was blotted and storm-beaten; all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however; many of the inner pages were well preserved. and although all were more or less stained and torn, whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today; its granite pages have been torn and blurred by the same storms that wasted the castaway book.

two years ago, when picking flowers in the mountains back of yosemite valley; i found a book. it was blotted and storm-beaten, all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however, many of the inner pages were well preserved. and although all were more or less stained and torn; whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today, its granite pages have been torn and blurred by the same storms that wasted the castaway book.