Question 1 On February 1, 2022, Clayton Corp. (lessee) enters a ten-year non-cancellable lease with Academy Ltd. (lessor) for equipment having an estimated useful life of 12 years and a fair value of $8,800,000 with payments at the beginning of each period. Clayton's incremental borrowing rate is 7%, but they do not know Academy's implicit rate. Clayton uses the straight-line method to depreciate assets. The lease contains the following provisions: 1. Semi-annual lease payments of $605,000 (including $45,000 for property taxes), payable on February 1 and August 1 of each year. 2. A guarantee by Clayton Corp. that Academy Ltd. will realize $300,000 from selling the asset at the expiration of the lease (residual value). Both companies adhere to ASPE. Instructions a. Calculate the undiscounted minimum lease payments over the life of the lease. (3 marks) b. Calculate the present value of the minimum lease payments. (3 marks) c. What kind of lease is this to Clayton Corp.? Why? (2 marks) d. Present the journal entries that Clayton would record during the first year of the lease. Include the final entry on February 1, 2023. Also, include an amortization schedule through February 1, 2023, and round values to the nearest dollar. Clayton's year-end is January 31st. (8 marks)