Assume that on January 1, 2020, Kroger Corp. signs a 6-year, non-cancelable lease agreement to lease a storage building from Trancoso Company. The following information pertains to this lease agreement:

1. The agreement requires equal rental payments of $35,000 beginning on December 31, 2020.

2. The fair value of the building on January 1, 2020, is $195,000.

3. The building has an estimated economic life of 12 years, an unguaranteed residual value of $5,000, and an expected residual value of $1,000. Kroger 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. The lessor's implicit rate is 6%, which is known by Kroger.

questions: (1) Determine whether this is a finance or operating lease. Clearly document your rationale and show all necessary calculations. (2) Prepare the journal entries on the lessee's books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2020, 2021, and 2022. Kroger's fiscal year-end is December 31.