on January 1, 2020, Sheridan leasing inc., a lessor that uses IFRS 16, signed an agreement with rock river inc., a lease, for the use of a compression system. the system cost 416000 and Sheridan purchased it from manufacturing solutions ltd. specifically for rock river inc. annual payments are made each January 1 by Rock River. in addition to making the lease payment, Rock River als reimburses Sheridan 4900 each January 1 for a portion of the repairs and maintenance expenditures, which cost Sheridan leasing a total of 7100 per year. at the end of the 5-year agreement, the compression equipment will revert to Sheridan and is expected to have a residual value of 28200, which is not guaranteed. collectible of the rental is reasonably predictable and there no important uncertainties surrounding the costs that have not yet been incurred by Sheridan leasing Inc.

Required:

1.what type of lease would this be considered and why? Explain.

2. Assume that the payments are due each January 1. prepare all journal entries and adjust journal entries for 2020 for the lessor, assuming that Sheridan has a calendar year-end. include the payment for the purchase of the equipment for leasing in your entries and the annual payment for repair and maintenance.