Novak Corporation entered into a lease agreement on January 1, 2020, to provide Wildhorse Company with a piece of machinery. The terms of the lease agreement were as follows. 1. The lease is to be for 3 years with rental payments of $15,602 to be made at the beginning of each year. 2. The machinery has a fair value of $61,000, a book value of $40,000, and an economic life of 8 years. 3. 4. 5. At the end of the lease term, both parties expect the machinery to have a residual value of $20,000, none of which is guaranteed. The lease does not transfer ownership at the end of the lease term, does not have a bargain purchase option, and the asset is not of a specialized nature. The implicit rate is 6%, which is known by Wildhorse. 6. Collectibility of the payments is probable. Click here to view factor tables. (a) Evaluate the criteria for classification of the lease, and describe the nature of the lease. For the lessee, it is a , and for the lessor, it is a Oriole Dairy leases its milking equipment from Waterway Finance Company under the following lease terms. 1. The lease term is 10 years, noncancelable, and requires equal rental payments of $29,400 due at the beginning of each year starting January 1, 2020. 2. The equipment has a fair value at the commencement of the lease (January 1, 2020) of $222,184 and a cost of $231,000 on Waterway Finance's books. It also has an estimated economic life of 15 years and an expected residual value of $14,100, though Oriole Dairy has guaranteed a residual value of $19,700 to Waterway Finance. 3. The lease contains no renewal options, and the equipment reverts to Waterway Finance upon termination of the lease. The equipment is not of a specialized use. 4. Oriole Dairy's incremental borrowing rate is 8% per year. The implicit rate is also 8%. 5. Oriole Dairy depreciates similar equipment that it owns on a straight-line basis. 6. Collectibility of the payments is probable. Click here to view factor tables. (a) Evaluate the criteria for classification of the lease, and describe the nature of the lease. In general, discuss how the lessee and lessor should account for the lease transaction. For the lessee, it is a , and for the lessor, it is a