Mike Macinski Leasing Company leases a new machine that has a cost and fair value of $95,000 to Sharrer Corporation on a 3-year noncancelable contract. Sharrer Corporation agrees to assume all risks of normal ownership including such costs as insurance, taxes, and maintenance. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2014. Mike Macinski Leasing Company expects to earn a 9% return on its investment. The annual rentals are payable on each December 31. The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs.

A. Discuss the nature of the lease arrangement and the accounting method that each party to the lease should apply.

B. Pepare an amortiation schedule that would be suitable for both the lessor and the lessee and that covers all the years involved.

C. Prepare the journal entries on the lessee's bookds ot refflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2014 and 2015.