ADMS Leasing Limited, which has a fiscal year end of December 31, signs an agreement on January 1, 2022, to lease equipment to Hypo Limited. The following information relates to the agreement. Both companies follow IFRS.

1. The term of the non-cancellable lease is seven years, with no renewal option. The equipment has an economic life of ten years with no residual value.
2. The assets cost to ADMS, the lessor, is $ 4,190,000. The assets fair value at January 1, 2022 is $ 4,190,000.
3. The lease includes a purchase option by Hypo of $ 100,000 at the expiration of the lease.
4. The incremental borrowing rate is 8% and ADMSs implicit interest rate is 6% which is known to Hypo.
5. Hypo incurred $ 10,000 legal fees when finalizing the agreement.
6. Hypo uses straight line depreciation method to depreciate assets.
7. The agreement requires annual rental payments, beginning on January 1, 2022.

Required:

1. Calculate the lease payment ADMS Ltd. will charge Hypo. Round to the nearest dollar. (2 marks)
2. What kind of lease is this to ADMS Inc.? Why? (2 marks)
3. On December 31, 2028, , Hypo has decided not to exercise the purchase option. Record the journal entry on Hypos book regarding the return of the equipment to ADMS. (4 marks)