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Capital leases are accounted for as purchases of assets and an incurred liability. The present value of the future minimum payment is accounted for as a liability and an asset. The asset is amortization for, as if it has been purchased by the lessee and the liability is accounted for as if a mortgage has been placed on the property. Expenses incurred in amortization, and the interest rate is noted each year. In the first year, the amortization and interest rates paid for the asset is recognized.

Part (b)

An operating lease is accounted for just as a simple rental contract. The firm assumes that it has rent the asset for use. The rental payments are debited to expense when they are incurred. If the rent is repaid, the payment is recognized as the repayment expires. The balance sheet does not recognize any asset or liability value of the asset.

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