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On $2$ January $20$X$5,$ Jayden Inc $($lessee$)$ entered into an agreement with Holstead Inc $($lessor$)$ to lease some equipment for five years.

The terms of the agreement are as follows:

The fair value of the equipment at the inception of the lease is $$101,000.$ Additional direct costs relating to the lease amount to

$$2,000.$

Lease payments are $$21,400$ per year, payable at the end of each lease year. The first payment will be due on $31$ December $204.$

The equipment's expected useful life is seven years.

The estimated unguaranteed fair value of the equipment at the end of the lease term is $$35,000.$

Jayden and Holstead have entered into a number of leasing arrangements in the past, with no issues.

Holstead applies ASPE.

Required:

Calculate the rate implicit in the lease for Holstead.

How is this lease classified for Holstead Inc. Explain fully and evaluate all criteria.

Prepare the lease amortization table for Holstead.

Prepare the journal entries for Holstead for $20x5$ to $20x9$ using the net method. Assume that in $20x9$ Holstead is able to sell the

equipment for cash proceeds of $$32,000.$