For the following lease of Memorial Hospital, determine the appropriate

classification of each lease $($finance or operating$)$ and its proper treatment on the

financial statements. In addition, prepare the journal entries to record the lease on the financial statements as of January $1,2018($assuming a calendar fiscal year$)$ and the subsequent year$-$end entries for $2018,2019,$ and $2020$ that reflect proper treatment using the new requirements for accounting for leases. Please present and SUMMARIZE the difference between operating and financing leases

A lease would be classified as a finance lease if$,$ A$)$ the lease transfers ownership of the underlying asset, B$)$ there is reasonable certainty that an option to purchase the underlying asset will be exercised, C $)$ the lease is for the majority of the remaining economic life of the underlying asset, D$)$the present value of the sum of the lease payments and residual value guarantee equals or exceeds the fair value of the underlying asset, E$)$ or the underlying asset is so specialized that there is no alternative use at the end of the lease term. If a lease does not meet any of these criteria, then it should be classified as an operating lease.

$2)$ Lease $2$The lease was entered into on January $1,2013$ with Smith Family

Trust for land that the hospital occupied. The lease was for $20$ years with two

options to renew for $20$ years each. The lease called for monthly payments in

the amount of $$20,472\mathrm{.}07,$ with a $5\%$ increase every $10$ years. The estimated

value of the property was $$6,200,000.$ The incremental borrowing rate at the

time the lease was finalized was $6\mathrm{.}7\%.$

$($ Please include all the Journal Entries required for the lease. As well as all required formulas with the calculations. Also the lease classification for the lease.$)$ Thank you.