Hi! I have a question in my accounting homework that I don't really understand.

"On 1/1/2017, Hart Company leased a machine from Cromwell Manufacturing for a three-year period ending in 12/31/2019. The machine cost Cromwell $60,000 and its normal sale price is $65,827. Equal payments under the lease are $20,000 and are due on 1/1/2017 and thereafter on 12/31 each year. Cromwell's interest rate for determining payments is 5%. At the end of the three year lease, the machine was expected to be worth $10,000. The estimated useful life of the machine is 3.5 years with no residual value. Both companies use straight-line amortization or depreciation. Hart guaranteed a residual value of $6,000. Hart knows about Cromwell's implicit rate."

Now I have to assume that the useful life is 5 years and none of the $20,000 residual value is guaranteed. But what would the lease be classified as by Hart and what pretax amount related to the lease would Hart report in its balance sheet and income statement at the end of December 2017? And what's the difference or similarity in the account for the lease contract compared to the contract described in the question?

Could you please help? I'd greatly appreciate it.