Maher has entered into a lease agreement with Johanson Company on January $1,2016.$

$1)$ The lease reverts back to Johanson Company at the end of the lease. Johanson does not offer a bargain purchase option.

$2)$ The term of the lease is $6$ years and requires annual payments of $$12,000$ at the end of the year.

$3)$ The present value of the lease payments is $$52,263$ using an incremental rate of $10\%,$ the equipment's fair value at lease inception is $$62,500.$

$4)$ The equipment has an estimated life of asset is $12$ years.

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Required:

$1)$ Determine whether the lease qualifies as an operating or capital lease for Maher.

$2)$ Prepare the journal entries that Maher would make for $2016$ and $2017.$