Question 3 S Ltd. leased a new piece of equipment to Y Ltd. under a 5-year non-cancelable contract starting 1 January 2016. Terms of the lease require payments of $22,000 each January 1, starting 1 January 2016. S Ltd. will pay insurance, taxes, and maintenance charges on the equipment, which has an estimated life of 12 years, a fair value of $160,000, and a cost to S Ltd. of $160,000. The estimated fair value of the equipment is expected to be $45,000 at the end of the lease term. No bargain purchase or renewal options are included in the contract. Both S Ltd. and Y Ltd. adjust and close books annually at December 31. Y Ltds incremental borrowing rate is 10%, and S Ltds implicit interest rate of 9% is known to Y Ltd. Although the lease term is 5 years, however, the leased equipment is of low value. Required: (a) Identify the type of lease involved and give reasons for your classification. Discuss the accounting treatment that should be applied by lessor.