Regina Corporation, which uses ASPE, manufactures replicators. On May 29, 2023, it leased to Barnes Limited a replicator that cost $265,000 to manufacture and usually sells for $410,000. The lease agreement covers the replicator’s five-year useful life and requires five equal annual rentals of $95,930 each, beginning May 29, 2023. The equipment reverts to Regina at the end of the lease, at which time it is expected that the replicator will have a residual value of $40,000, which has been guaranteed by Barnes, the lessee. An interest rate of 12% is implicit in the lease agreement. Collectibility of the rentals is reasonably assured, and there are no important uncertainties concerning costs.

(a) Discuss how the lease should be classified by Regina and, using 

(1) Tables, 

(2) A financial calculator, 

(3) Excel functions, prove that the amount of the annual payments will yield 12% interest to Regina.

(b) Prepare Regina’s May 29, 2023 journal entries.