Cambridge Company leased equipment from Amherst Company on January 1, 2016. Information about the lease is as follows:

Lease payments, due at the beginning of each year - $35,000

Lease term - 7 years

Estimated useful life of the equipment - 10 years

Cambridge's incremental borrowing rate - 12%

Interest rate implicit in the lease (known to Cambridge) - 10%

Residual Value (not guaranteed by Cambridge) - $20,000

Fair market value of the equipment - $230,000

Cambridge's depreciation method - Straight-line

No bargain purchase option; no transfer of ownership

Required:

A.) compute the present value of the minimum lease payments

B.) Classify the lease from the viewpoint of Cambridge Company, giving reasons.

C.) Prepare Cambridge's journal entry or entries for the lease for 2016.