1) ABC Inc. leased equipment from Tommy Inc. on 12/31/2006. The lease is non- cancelable. The lease agreement specified annual payments of $60,894 beginning with the first payment at the inception of the lease, and each December 31 through 2008. No executory costs are included in the annual payment. The leases gives ABC the option to purchase the equipment on 12/31/2009 for 22,000 when the fair value is expected to be 30,000. If the purchase option is not exercised, the equipment will be returned to Tommy. Additional information: Fair value of the leased property on 12/31/2006: $195,000 Estimated economic life of the property as of 12/31/2006: 5 years Salvage value at the end of its economic life: 0 Cost of the equipment for the lessor: 160,000 Lessee's incremental borrowing rate equals or exceeds the lessor's implicit rate and implicit rate in the lease is 9%. Collectibility is reasonably assured and the lessor has substantially completed performance. Requirement 1: Calculate the present value of minimum lease payment. Requirement 2: If this is a capital lease for the lessor, is it a sales-type capital lease or a direct financing capital lease? Requirement 3: Record the JE separately for the lessee and lessor on 12/31/2006 and 12/31/2007