On January 1 of Year 1, Ashe Company entered into a ve-year equipment lease (with no renewal options) requiring payments of $10,000 , with the rst payment due immediately. The lessors implicit interest rate, known to Ashe, is 6%. Ownership of the equipment remains with the lessor at expiration of the lease. There is no option to purchase the property at the end of the lease term and the equipment is expected to have no residual value. The equipment has an estimated economic life of ve years.

a. How would Ashe Company classify the lease? AnswerFinance leaseOperating lease

b. Prepare a schedule of the lease liability for the 5-year lease term. Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.