Pairy Dairy leases its milking equipment from Calvin Finance Company under the following lease terms.

The lease term is 10 years, non-cancelable, and requires equal rental payments of $30,300 due at the beginning of each year starting January 1, 2015.

The equipment has a fair value at the commencement of the lease (January 1, 2015) of $242,741 and a cost of $180,000 on Calvin Finance's books. It also has an estimated economic life of 15 years and an expected residual value of $45,000, though Pairy Dairy has guaranteed a residual value of $50,000 to Calvin Finance.

The lease contains no renewal options, and the equipment reverts to Calvin Finance upon termination of the lease. The equipment is not of a specialized use.

Pairy Dairy's incremental borrowing rate is 8% per year. The implicit rate is also 8%.

Pairy Dairy depreciates similar equipment that it owns on a straight-line basis.

Collectibility of the payments is probable.

Required:

1. Please show the calculation(s)/discussion of the test you use to answer the following questions:

a. What type of lease is this for the lessee?

b. What type of lease is this for the lessor?