Problem v ABC Company signed a five-year noncancelable lease of equipment with Lessor Company on January 1, 2020. The lease contract has four renewal options of one year each. The equipment has an estimated useful life of 10 years and a fair value to the lessor of $7,000,000 on January 1, 2020. ABC's incremental borrowing rate is 10%. ABC uses the straight-line depreciation method. The lease contract has the following provisions: 1. Rental payments of $342,000 including $20,000 for property taxes, payable at the beginning of each six-month period. 2. A termination penalty assuring renewal of the lease for a period of four years after expiration of the initial lease term. 3. An option allowing the lessor to extend the lease one year beyond the last renewal exercised by the lessee. 4. A guarantee by ABC Company that Lessor Company Corp. will realize $200,000 from selling the asset at the expiration of the lease. However, the actual residual value is expected to be $120,000. Instructions 1. What kind of lease is this to Lessor Company? To ABC? Explain. 2. Create a schedule showing how you calculated the least term. 3. Determine the minimum lease payments. 4. Determine the present value of the minimum lease payments. 5. Create an amortization schedule for the lease. 6. Show the journal entries for ABC and Lessor for the first year of the lease. 7. If Lessor had purchased the equipment for $8,500,000, what additional entry would Lessor make