Burrill Limited has an 7\% incremental borrowing rate at the local bank. On 1 January 20X1, Burrill signed the following lease agreement for a piece of equipment. The equipment has a fair value of \(\$ 170,000\) and a 12-year economic life. Other information is as follows:

- The non-cancellable lease is for eight years.

- The lease payment is \(\$ 24,000\) annually, payable at the beginning of each lease year.

- Lease payments include \(\$ 3,600\) of maintenance expense annually.

- At the end of the lease term, the leased asset reverts back to the lessor.

OTHER INFORMATION:

- Burrill has a fiscal year that ends on 31 December.

- Burrill uses straight-line depreciation for similar capital assets.

Required:

1. For this lease, provide the:

a. Lease tern.

b. Guaranteed residual value.

c. Unguaranteed residual value.

d. Bargain purchase option.

e. Minimum net lease payment.

f. Incremental borrowing rate.
If these amounts do not exist in the above lease, enter "none" as your response. State any assumptions.
2. Is this lease an operating lease or a finance lease for the lessee? Explain your reasoning.
3. Prepare the journal entries for the first year of the lease on Burrill's books.
4. Would your answer to requirement 2 change if the lease contained a guaranteed residual value of \(\$ 50,000\) ? Explain.