On December 30, 2019, Drew Company leased equipment under a lease for a period of 5 years. Drew contracted to pay \(\$ 90,000\) on December 31,2019 , with an annual increase of \(3 \%\) (calculated on the previous year's lease payment) for each of the next four years due on December 31. The leased equipment has a useful life of 7 years, a fair value of \(\$ 450,000\), and the interest rate implicit in the lease is \(8 \%\) and is known to Drew Company.

Required

a. How would Drew Company classify the lease?

b. Prepare an amortization schedule of the lease liability.

c. Prepare the entries for Drew Company for years 2020 and 2021.