Access Limited has decided to lease office equipment with a fair market value of \(\$ 580,000\). The lease is with the Imperial Leasing Corporation, a U.S.-based subsidiary of a Japanese financial firm. The terms of the lease are as follows:

- The initial lease term is five years. The lease commences on 1 January 20X1.

- For the initial lease term, payments are \(\$ 105,000\) annually, made at the beginning of each lease year. Each payment includes an estimated \(\$ 5,000\) for insurance.

- There is a renewal term at the lessee's option for a further three years. Payments during the renewal term are \(\$ 43,000\), including \(\$ 3,000\) for insurance.

- Access Limited guarantees a residual value of \(\$ 150,000\) at the end of the first term if the renewal option is not exercised. If Access does renew, there will be no requirement to guarantee a residual value.

- If Access Limited did not lease the equipment from Imperial Leasing Corporation, the company would incur an incremental borrowing rate of \(8 \%\).

Required:

1. Is the lease a finance lease or an operating lease for Access Limited? Why?

2. Prepare a lease amortization schedule 3. Prepare entries for Access Limited for 20X1, assuming the company has a 31 December year-end and uses straight-line depreciation.

4. Prepare entries for Access Limited for the calendar year 20X1, assuming the company has a 31 March year-end instead.

5. Assuming that the company has a 31 March year-end, how would the lease liability appear in Access Limited's SFP at 31 March 20X1? Access Limited uses current-non-current classification.