On January 1, 2021, SantanaBrewing, a lessee, entered into three non-cancelable leases for new equipment, Lease O, Lease M, and Lease G. None of the three leases transfers ownership of the equipment to Santana Brewing at the end of the lease term. The following information is specific to each lease.

1. Lease O does not contain a bargain purchase option.

2. Lease M contains a bargain purchase option. The lease term is equal to 50% of the estimated economic life of the equipment.

3. Lease G does not contain a bargain purchase option. The lease term is equal to 50% of the estimated economic life of the equipment.

Required:

a. What amount, if any, should Santana Brewing record as a liability at the commencement of the lease for each of the three leases above? Please explain your answer!

b. Assuming that the lease payments are made on a straight-line basis, how should Santana Brewing record each lease payment for each of the three leases above? Please explain!