Blossom Incorporated leases a piece of machinery to Ayayai Company on January 1, 2020, under the following terms.

1.

The lease is to be for 4 years with rental payments of $14,645 to be made at the beginning of each year.

2.

The machinery has a fair value of $78,680, a book value of $58,720, and an economic life of 10 years.

3.

At the end of the lease term, both parties expect the machinery to have a residual value of $29,360. To protect against a large loss, Blossom requests Ayayai to guarantee $20,770 of the residual value, which Ayayai agrees to do.

4.

The lease does not transfer ownership at the end of the lease term, does not have any bargain purchase options, and the asset is not of a specialized nature.

5.

The implicit rate is 5%, which is known by Ayayai.

6.

Collectibility of the payments is probable. Prepare the journal entries for Blossom for the year 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 5,275.)

Date	Account Titles and Explanation	Debit	Credit
Jan. 1
	(To record lease)
Jan. 1
	(To record first lease payment)
Dec. 31
	(To record interest revenue)

Evaluate the criteria for classification of the lease, and describe the nature of the lease, assuming that Ayayai did not guarantee any amount of the expected residual value.

For the lessee, it is a finance leaseoperating leasesales-type lease, and for the lessor, it is a sales-type leasefinance leaseoperating lease.

The lease is to be for 4 years with rental payments of $14,645 to be made at the beginning of each year.
2.		The machinery has a fair value of $78,680, a book value of $58,720, and an economic life of 10 years.
3.		At the end of the lease term, both parties expect the machinery to have a residual value of $29,360. To protect against a large loss, Blossom requests Ayayai to guarantee $20,770 of the residual value, which Ayayai agrees to do.
4.		The lease does not transfer ownership at the end of the lease term, does not have any bargain purchase options, and the asset is not of a specialized nature.
5.		The implicit rate is 5%, which is known by Ayayai.
6.		Collectibility of the payments is probable.

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Evaluate the criteria for classification of the lease, and describe the nature of the lease.

For the lessee, it is a operating leasefinance leasesales-type lease, and for the lessor, it is a finance leasesales-type leaseoperating lease.