Each of the four independent situations below describes a lease requiring annual lease payments of $30,000.

Situation 1 2 3 4

Lease term (years) 8 8 8 8

Assets useful life (years) 12 12 10 12

Assets fair value $132,000 $123,000 $129,000 $117,000

Bargain purchase option? No No No yes no

Annual lease payments Beg. of yr. Beg. of yr. End of yr. End of yr.

Lessors implicit rate (known by lessee) 5% 5% 7% 6%

Lessees incremental borrowing rate 5% 5% 5% 5%

Required: For each situation, determine the appropriate lease classification by the lessee and indicate why. Please show the calculations. Thank you