#10 Faber Corporation leases an asset to Pau Company for 10 years beginning January 1, 2016, at an annual rental of $5,000. Faber's implicit borrowing rate is 10%, and is known to Pau: Pau's implicit borrowing rate is 11%, and is known to Faber. The first payment is due at the beginning of the first year. The asset's economic life is 12 years and the fair value of the asset at the inception of the lease is $34,000. The lease requires Pau to pay $840 in annual executory costs and fees. The lease does not transfer ownership nor contain a bargain purchase option. Additional information: The PV of an annuity due of 1 for 10 periods at 10% = 6.759 The PV of an annuity due of 1 for 10 periods at 11 % = 6.537 (a) Is this an Operating Lease or a Capital Lease? Why? (b) What is the Present Value of the Minimum Lease Payments for the above lease? (Hint: Use the lessee's incremental borrowing rate UNLESS the lessor's implicit rate is lower AND the lessee has knowledge of the lower rate.) (c) What JE is needed (if any) for Pau to record the above lease? (Hint: Record the lease at the LESSER of the asset's fair value at inception of the lease or the present value of the minimum lease payments.) (d) What JE is needed (if any) for Pau to record depreciation on the above leased asset? Why? (Assume Pau uses striaght-line depreciation and $0 salvage value for all its depreciable assets.)