(8 points) Fresno Corporation leases a building to Hanford, Inc. on January 1, 2020. The following facts pertain to the lease agreement.

(a) The lease term is 10 years with equal annual rental payments of $31,041 at the end of each year.

(b) Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature.

(c) The building has a fair value of $400,000, a book value to Fresno of $198,000, and a useful life of 15 years.

(d) At the end of the lease term, Fresno and Hanford expect the residual value of the building to be $108,000, and this amount is guaranteed by Hanford. The expected residual value for this type of lease is $60,000.

(e) Hanfords incremental borrowing rate is 6%. The rate implicit in the lease earned by Fresno is not known to Hanford.

Required: Describe the nature of this lease to both Fresno and Hanford. Show computation and explanations leading to your conclusion.