On January 1. Gump Sales Company entered into an agreement to lease a piece of machinery for a period of 5 years from Smokey Boy Equipment (SBE). The machine is not specialized for Gump's business needs, has a sales price of $70,000. and its useful life is 7 years with no guaranteed residual value. The $15,000 annual rentals are due on January 1 of each year. The lease does not contain a transfer of ownership or a purchase option. Assume that there are no initial direct costs associated with this lease. There are also no nonlease components. SBE's implicit rate is not known to Gump whose incremental borrowing rate is 13%. The carrying value of the equipment to SBE is $70,000, its fair value. Assume that collectabiliry of all lease payments is reasonably assured. Gump's fiscal year ends on December 31.

Required

a. Determine the lease classification for Gump Sales.

b. Prepare the journal entries over Years 1-3 for Gump Sales based on your answer to pan (a).

c. Include an amortization table for the lease liability and right-of-use asset.