Earth, Inc. (lessor) and Moon Colony 2 (MC2, lessee) signed a 20-year non-cancelable lease for sky-projection equipment on December 28, 2399. The lease agreement has a January 1, 2400 commencement date and the following details: 1. The projection equipment has an estimated economic life of 28 years. 2. Earth, Inc. routinely leases this type of equipment to space colonies. 3. The annual lease payment is $262,000, payable starting January 1, 2400 and ending with a final payment on January 1, 2419 (for a total of 20 payments). MC2 (lessee) made the first payment on January 1, 2400, as scheduled. 4. The fair value of the projection equipment at lease commencement is $3,000,000. 5. The lease does not contain a renewal or purchase option, and the asset reverts to Earth, Inc. at the end of the 20-year lease period. 6. The lease includes a guaranteed residual value clause, whereby MC2 (lessee) guarantees the asset will be worth at least $200,000 at the end of the lease term. MC2 expects the asset to be worth only $160,000 at the end of the lease term. 7. The rate implicit in the least (which is known to the lessee) is 9%. 8. MC2 is a calendar year-end space colony. 9. MC2 incurred $14,000 in legal and permitting fees to execute the lease, which they paid in cash on December 28, 2399. Required (from the lessee's, MC2) perspective: a. Determine the appropriate lease classification. b. Record the entries required in December 2399 (if any) for this lease.