On January 2, 2020, Petronila Company leased several machines from Petrakos Corporation under a three-year lease agreement. The lease calls for semiannual payments of $15,000 each, payable on June 30 and December 31 of each year. The machines were acquired by Petrakos at a cost of $130,000 and are expected to have a useful life of 6 years with no expected residual value. Required:

1. How Petronila classify this lease? and how Petrakoss classified it?

2. Prepare the appropriate journal entries only for the lessor from the inception of the lease through the end of 2020.

II. Micro Company leased equipment from Macro Leasing on January 2, 2020. Macro purchased the equipment at a cost of $300,000 equal to fair value of asset. The lease term is for 3 years and the useful life of equipment is 4 years with no residual value. Annual lease payments at January 2, each year. The interest rate is 8% on lease contract and its equal to lessee incremental borrowing.

Required: 1. Classify the lease for the lessee view point. Calculate the annual lease payment and prepare a lease amortization schedule.

2. Prepare appropriate journal entries for Micro Company (Lessee) for 2020 and 2021. Assume a December 31 year-end.