Awesome Limited, which has an accounting year end on 31 December, had entered into two lease agreements with the following entities:

1. (i) how would Awesome classify the lease?

2. (ii) prepare the journal entries for Awesome in the year 2019.

Machine Awesome leased a machine to Sample Limited on 1st July 2019. The lease provisions required Sample to pay three annual payments of $22,000 to Awesome, beginning 1st July 2019. The expected remaining economic life of the machine was ten years. Ownership does not transfer at the end of the lease term, there will be no bargain purchase option, and the asset is not a specialized nature. Sample has to return the machine to Awesome. At the inception of the lease, the fair value of the machine was $104,845. Awesome purchased the machine at the cost of $150,000 in 2017. At the end of the lease term, Awesome expect there will be an unguaranteed residual value of $4,000. The interest rate implicit in both leases are 5% per annum. All the companies are adopting straight-line method for depreciation