b

Classification as a Finance or Operating Lease and Journal Entries, Lessee (18 points) 5 Nace Manufacturing Company leased a piece of nonspecialized equipment for use in itse operations from Righteous Leasing on January 1, 2019. The 10-year lease requires lease payments of $4,000, beginning on January 1, 2019, and at each December 31 thereafter through 2027. The equipment is estimated to have a 10-year life, is depreciated on the straight-line basis and will have no residual value at the end of the lense term. Nace's incremental borrowing rate is 11%. Righteous Leasing acquired the asset just prior to the lease term at a cost of $27.000 Collection of all lease payments is reasonably assured. Assume there are no initial direct costs with this lease. There are also no nonlease components. The present value of the lease payments is S $26,148. Required: a) What is the proper classification of the lease to Nace based on an analysis of the Group criteria and why? b) Prepare Nace Manufacturing's journal entries at the commencement of the lease, January 1, 2019, and December 31, 2019, c) Prepare Nace Manufacturing's journal entries for December 31, 2020