P2.11 (102,4) Groupwork (Lestee-Lessor Accounting foe Realdual Values) Coring Dairy leaves its milking equipment from King Pinance Company under the following lease terme. 1. The lease term is 10 yeans, non-cancelable, and requires equal rental payments of 530,300 due at the beginning of each year starting January 1, 2020. 2. The equipment has a fair value at the comnencement of the lease (January 1, 2020) of $242,741 and a cost of 5180,000 on King Finance's books. It also has an estimated economile life of 15 years and an expecied residual value of $45,000, though Coring Dairy has guaranteed a residual value of $50,000 to King Finance. 3. The lease contains no renewal options, and the equipment reverts to King Finance upon termination of the lease. The equipenent is not of a specialized use. 4. Coring Dairy/s incremental borrowing rate is sx per year. The implicit nate is also \&x. 5. Coring Dairy depreciates similar equipment that it owns on a straight-line bask. 6. Collectibility of the payments is probable. Instructions a. Evaluate the criteria for clasification of the lease, and describe the nature of the lease. In general, discus how the lessee and lessor should account for the lease tranaction. b. Prepare the journal entries for the lessee and lesior at January 1, 2020, and December 31, 2020 (the lessee's and lessor's year-end). Aswame no reversing entrics. c. What would have been the amount of the initial lease liability recorded by the lessee upon the commencement of the lease if: 1. The residual value of $50,000 had been guanateed by a third party, not the lessee? 2. The residual value of 550,000 had not been guaranteed at all