Problem 7 Lessee - No Guaranteed Residual Value Water Company enters into a lease agreement with Postner Co. on Jan 1, 1999, to lease a machine to be used in its manufacturing operations. The following data pertain to this agreement. a. The term of the noncancelable lease is 4 years, with no residual value at the end of the lease term. Payments of $37,283 are due at beginning of each year. The first payment in advance is paid on Jan. 1, 1999. b. The fair value of the machine on Jan 1, 1999 is $130,000. The machine has an economic life of 4 years, with no salvage (residual) value. The machine reverts to the lessor upon the termination of the lease. C. W and P companies use the straight-line method to depreciate equipment. d. W's incremental borrowing rate is 10% and the implicit rate is unknown. Required: 1) Is this a capital lease or operating lease. Why? 2) Instructions: Prepare journal entries on the books of the lessee through the first year of the lease.. The accounting period of both companies ends on December 31. Also, prepare Jan. 1 entry for second year of lease