Danny Inc. uses leases as a means of selling its equipment. On January 1, 2019, Danny leased a machine to Eddy Inc for 5 years. The machine had a book value (carrying amount) of

$20,000 and a remaining economic life of 6 years. The fair market value of the machine was $24,000 at the time of the noncancelable lease. Danny's implicit rate is 8% for the lease. Annual lease payments are $5,000 and are payable each December 31. The expected residual value of $2,000 is guaranteed by the lessee. The collectability of the lease payments is probable for the lessor.

(Note: Present value of an ordinary annuity of 1 for 5 periods at 8% is 3.99271, of an annuity due of 1 for 5 periods at 8% is 4.31213. Present value of 1 for 5 periods at 8% is 0.68058).

Instructions:

1. What type of lease is it for lessee and lessor? Explain briefly

2. Provide the necessary journal entries to record the transactions for the lessee for the period January 1, 2019 through December 31, 2020

3. Provide the necessary journal entries to record the transactions for the lessor for the period January 1, 2019 through December 31, 2020