Question :
On 1st January, 2008, the SAS Company entered into a lease for a high-tech printing press where SAS agreed to build five annual payments of $224,000 starting 31st December, 2008. They properly evaluated that the PV of the minimum lease payments was $894,000. The lease particular a $1 purchase option so they knew the lessor's implicit rate of 8 percent. SAS treated this lease as an operating lease, even though they thought that a $1 buy option was a really good deal!
SAS's auditors did not even look at this lease last year. Thus, at 12/31/09 its new auditors looked intimately, and they told SAS that this could have been recorded as a capital lease, because the buy option was a bargain.
Purpose the entries that fix this error. SAS usually depreciates assets like printing presses over five years. The 2008 books have long been closed, but the 2009 books are still open.