Marshall Enterprises agrees to lease equipment to Burlington Corporation on June 30, 2016. Burlington uses IFRS 16 and Marshall uses ASPE. The following information relates to the lease agreement.

1. The lease term is five years, with no renewal option, and the equipment has an estimated economic life of six years.

2. The equipments cost is $330,000 and the assets fair value on June 30, 2016, is $435,000.

3. At the end of the lease term, the asset reverts to Marshall, the lessor. The asset is expected to have a residual value of $45,000 at this time, and this value is guaranteed by Burlington. Burlington depreciates all of its equipment on a straight-line basis.

4. The lease agreement requires equal annual rental payments, beginning on June 30, 2016.

5. Marshalls implicit rate is 11% and this is known to Burlington. Burlingtons incremental rate is 10%.

6. Marshall is certain about what additional costs it might have to incur in connection with this lease during the lease term, and there are no uncertainties related to the collection of the lease payments meaning the credit risk is normal.

7. Marshall incurred legal costs of $5,000 in early June 2016 in finalizing the lease agreement.

Required:

a) Discuss the nature of this lease for the lessor, Marshall.

b) Prepare the journal entries that Marshall would make in 2016 and 2017 related to the lease arrangement, assuming that ASPE is applied in determining the payment and the company has a December 31 fiscal year end and does not use reversing entries.

(c) From the information you have calculated and recorded, identify all balances related to this lease that would be reported on Marshalls December 31, 2016 balance sheet and income statement, and where each amount would be reported.