(b) The information below relates to a leasing arrangement between Summer Leasing Company and Talon Company, a lessee. Inception date January 1, 2020 Lease term 6 years Annual lease payment due at the beginning of each year, beginning with January 1, 2020 $150,000 Fair value of asset at January 1, 2020 $760,000 Economic life of leased equipment 7 years Residual value of equipment at end of lease term, guaranteed by the lessee $65,500 Lessors implicit rate 10% Lessees incremental borrowing rate 12% January 1, 2020 The asset will revert to the lessor at the end of the lease term. The lessee has guaranteed the lessor a residual value of $65,500. The lessee uses the straight-line depreciation method for all equipment. Instructions (iv) Record interest expense and lease liability for Talon Company for the year ending December 31, 2020. (v) Discuss the nature of this lease to Summer Leasing Company.

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