Oriole Company leases a building to Sage Hill, Inc. on January 1, 2020. The following facts pertain to the lease agreement.

1.		The lease term is 4 years, with equal annual rental payments of $5,151 at the beginning of each year.
2.		Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature.
3.		The building has a fair value of $21,000, a book value to Oriole of $14,000, and a useful life of 5 years.
4.		At the end of the lease term, Oriole and Sage Hill expect there to be an unguaranteed residual value of $3,500.
5.		Oriole wants to earn a return of 8% on the lease, and collectibility of the payments is probable. This rate is known by Sage Hill.

Assume that Sage Hill was unaware of the implicit rate used in the lease by Oriole and has an incremental borrowing rate of 9%. Click here to view factor tables. How would Oriole (lessor) and Sage Hill (lessee) classify this lease?

Oriole would classify the lease as a

lease.

Sage Hill would classify the lease as a

lease.

How would Oriole initially measure the lease receivable, and how would Sage Hill initially measure the lease liability and right-of-use asset? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275.)

		Oriole
Lease receivable		$
Present value of lease pay		$

		Sage Hill
Lease Liability/Right-of-Use Asset		$