Part 2: Classifying Leases 1. Lessee Co. leases a common piece of machinery from Lessor Corp. The lease begins on January 1, 2019, and includes the following details: The lease has a term of four years and is non-cancelable. The lease contains no renewal or purchase options. The machinery reverts to Lesson Corp. at the termination of the lease. The machinery has a fair value at commencement of the lease of $40,000, an estimated economic life of four years, and no residual value. The cost of the machinery on Lesson Corp.'s books is $30,000. Rental payments of $11,182 are due at the beginning of each year, starting on January 1, 2019. The collectibility of the payments is probable. Lessor Corp. uses an implicit interest rate of 8% to set the rental payments. This rate is known by Lessee Co. . Both parties have policies of using straight-line depreciation when accounting for similar pieces of machinery. Determine whether this lease should be classified as an operating lease or a finance/sales-type lease. Part 3: Basic Accounting for Leases 1. Finance /Sales-Type Lease: Using the scenario from #1 in Part 2, provide the appropriate journal entries for both Lessee Co. and Lessor Corp. over the term of the lease