3. Lessee leases asset from Lessor. Fair market value of the asset currently is $500,000. Asset as a remaining economic life of 10 years. Lease term is for 7 years. Implict rate on lease is 12% and this rate is NOT known by Lessee, Lessee's incremental borrowing rate is 10%. be worth $150,000 at end of lease term (ie, r guarantee $45,000 of the $150,000 residual value. Lessee believes that asset will be worth at least 45,000 at end of lease term. Lessor believes asset will 0). Lessor requires that Lessee Lease payments of 94,691 are made annually at year-end. Lease inception date is January 1. Lessor incurred $20,000 of initial direct costs. The Lessor paid the initial direct costs in cash, with the offsetting debit to Miscellaneous Expenses at the time of payment. a. Assume Lessor's cost of lease asset-400,000. Classify the lease, book the lease (both Lessee and Lessor entries), and prepare journal entry (both Lessee and Lessor entries) for the first lease payment due December 31. b. Prepare amortization schedule that shows the split between interest and principal for the full term of the lease for Lessor and Lessee