Morey Inc. leases equipment from Equity Leasing with a five-year non-cancelable lease on January 1, 2021 under the following terms:

A.Five payments of $26,379.74 (a 9% implicit rate which is known to Morey) due at the end of each year.

B.The payments were calculated based on the fair value (which is also Equity's book value) of the equipment.

C.The lease is nonrenewable and the equipment revers to Equity at the end of the lease term.

D.The equipment has a six-year economic life.

1) What type of lease is this to Equity Leasing?

2) Make the journal entry that Equity would make to record this lease on January 1, 2021.

3) Make the journal entry that Morey would make to record the second payment on December 31, 2022.