Krawczek Company will enter into a lease agreement with Heavy Equipment Company where Krawczek will make lease payments over the next five years. The lease is cancelable and requires equal annual payments of $$30,400$ per year beginning on January $1$ of the first year. The last payment will be January $1$ of year $5,$ and Krawczek will continue to use the asset until December $31$ of that year. Other important information includes the following:

The fair value of the equipment is $$205,000.$

The applicable discount rate is an $8$ percent annual rate.

The economic life of the asset is $10$ years.

Krawczek does not guarantee the residual value of the asset at the end of the lease, and it does not expect to keep the asset at the end of the term.

The asset is a standard piece of equipment.

Is the lease an operating lease or a financing lease?

What will be the lease expense shown on the income statement at the end of year $1?$