Harlander Corporation leased industrial equipment to American Manufacturing on January 1, 2019. The following facts pertain to the lease:

1. The lease term is 4 years.
2. The annual lease payment is due at the beginning of each year starting on January 1, 2019. Each annual lease payment is $269,282
3. Ownership does not transfer at the end of the lease term and there is no bargain purchase option.
4. The asset is not of a specialized nature.
5. The industrial equipment has a fair value of $1,000,000, a book value to Harlander Corporation of $900,000, and useful life of 5 years. American Manufacturing depreciates similar equipment using the straight-line method.
6. The lease contains a guaranteed residual value of $50,000. The expected residual value is greater than $50,000.
7. Harlander Corporation wants to earn a return of 8% on the lease, and the collectability of the payments is probable. This rate is known by American Manufacturing.
8. American Manufacturings incremental borrowing rate is 6%.

Instructions

1. How would Harlander Corporation (lessor) and American Manufacturing (lessee) classify this lease? Explain your answer with support.
2. Prepare the Lease Amortization Schedule for American Manufacturing (Lessee).
3. Prepare all the necessary journal entries required for American Manufacturing (Lessee) on January 1, 2019; December 31, 2019; and January 1, 2020
4. Prepare the Lease Amortization Schedule for Harlander Corporation (Lessor).
5. Prepare all the necessary journal entries required for Harlander Corporation (Lessor) on January 1, 2019; December 31, 2019; and January 1, 2020.