1. On January 1^st, 2021, Zimmer Contracting ( lessee ) signed an agreement to lease a bulldozer from Sting Supply ( lessor ) for a period of three years. The lease contract requires payments of $10,000 on December 31^st of 2021, 2022 and 2023. The bulldozer can be purchased by Zimmer at the end of the lease for a nominal (i.e., very small) amount. The bulldozer has an estimated economic life of 6 years. The market rate of interest was 10% at the time of signing the lease. The fair market value of the bulldozer at the time of signing the agreement was $29,000. Zimmer is a private company following ASPE.

Instructions:

1. How will this lease be classified by Zimmer? Explain.

2. Prepare the journal entry, if any, by Zimmer on January 1^st, 2021 to record the lease agreement.