On January 1 of Year 1, Merick Inc. purchased a building for $6 million. The building is expected to have a 45- year life with no salvage value. The building was leased immediately by Kregor Construction for $390,000 a year, payable January 1 of each year starting at the lease commencement. The lease term is five years with no renewal or purchase option reasonably expected to be exercised. There are no uncertainties surrounding the lease payments to be made by Kregor. The implicit rate of the lease is 7%, known by Kregor Construction. Required a. How would Kregor Construction classify the lease? Answer Lease Liability Schedule Right-of-Use Asset Schedule Journal Entries b. Prepare a schedule of the lease liability for the first two years of the lease term. Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule.

date	lease payment	interest on liability	lease liability change	lease liability
jan 1. yr1
jan 1. yr1
jan 1, yr2
jan 1, yr3