Answer questions 14-19 from the following information.

On January 1, Lessor Company leases equipment to Lessee Company. The lease term is 7 years; the economic life of the asset is 9 years. The cost of the equipment is $10,000; its fair value is $15,000. Lessors implicit rate is 4%; Lessees incremental borrowing rate is 4%. The lease payments of $2,400 are due at the beginning of each year.

14. Is this a finance lease or an operating lease for Lessee?

15. What is the lease liability on January 1?

16. What is the right-of-use asset on January 1?

17. Now assume that there is an unguaranteed residual value of $4,000, the present value of which is $3,040. If the present value factor of an annuity due, 7 periods at 4%, is 6.242, how much are the periodic payments?

18. On the journal entry for Lessor, what is the dollar amount for Sales?

19. Now assume that instead of the residual value of $4,000 being unguaranteed, the residual value is guaranteed by Lessee in the amount of $4,000. Does Lessee include the $4,000 guaranteed residual value in the lease liability?