Assume that on December 31, 2019, C Corp signs an 8-year, non-cancelable lease agreement to lease a storage building from D Storage Company. The following information pertains to this lease agreement.

1. The agreement requires equal rental payments of $78,256 beginning on December 31, 2019.
2. The fair value of the building on December 31, 2019, is $500,000.
3. The building has an estimated economic life of 10 years with no salvage value. C Corp depreciates similar buildings on the straight-line method.
4. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor.
5. C Corps incremental borrowing rate is 8% per year. The lessors implicit rate is 7%, which is known to C Company.

Instructions:

1. Indicate, by using the lease tests, what type of lease this is.
2. Prepare the journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019, 2020, and 2021. C Corps fiscal year-end is December 31.