. MAX and Chris Company sign a lease agreement dated January 1, 2017. The lease agreement calls for MAX to lease a bulldozer to CHRIS Company beginning January 1, 2017. The terms of the lease agreement and other important data are as follows.

1. The lease term is 5 years. The lease agreement is non-cancellable, requiring equal rental payments of $20,711 at the beginning of each year. The bulldozer has a fair value at the commencement of the lease of $100,000, an estimated economic life of five years, and a guaranteed residual value of $5,000.
2. The lease contains no renewal options. The equipment reverts to Caterpillar at the termination of the lease.
3. CHRISs incremental borrowing rate is 5 percent per year. Sterling uses straight-line method for similar equipment that it owns.
4. MAX sets the annual rental rate to earn a rate of return of 4 percent per year.

REQUIRED:

a. What type of lease does CHRIS Co. engaged into (3 points). Justify your answer.

b. How much will MAX recover from the lease? (3 points).

c. Show the journal entries required by CHRIS Co. on January 1, 2017 (3 points)

d. Perform the 4-lease amortization by Sterling Corporation (5 points).

e. Show the journal entry of accrued interest expense as of December 31, 2017 (3 points).