(This Problem Requires Use of Present Value Tables.)

question 17

Essay

(This problem requires use of present value tables.)
Paolo, Inc. (the lessor) entered into a sales-type lease with another company on January 1, 2014. The lease was for five years with $40,000 due at the end of each year. The cost of the equipment on Paolo's books was $140,000. Paolo uses an interest rate of 8%.
Required:
(Round all answers to the nearest dollar.) (Round all answers to the nearest dollar.)
a.Prepare all journal entries for Paolo for the year 2014.
b.If Paolo has mistakenly accounted for this lease as an operating lease, by how much would the company's 2014 income be overstated or understated because of this error? (Be sure to indicate under or over.)

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Definitions:

Ethical Blind Spots

Phenomena where individuals or organizations overlook ethical issues or moral consequences of decisions due to cognitive biases.

Underpaid

A condition in which an individual receives compensation less than what is considered fair or adequate for the work performed, based on industry standards or job requirements.

Unethically

Acting in a manner that goes against moral principles or established standards of conduct.

Ethical

Pertaining to moral principles or values that govern an individual's or group's behavior.