Questions: [1] Describe the nature of the lease to the lessee. So, Finance lease or Operating lease. Please show all 5 classification criteria and determine if each of the 5 criteria is met or not. [2] Prepare the journal entry on only January 1, 2017.

P21-1 (L02,4) (Lessee Entries, Finance Lease) The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Vance Company, a lessee Commencement date Annual lease payment due at the beginning of January 1, 2017 each year, beginning with January 1, 2017 Residual value of equipment at end of lease term $113,864 guaranteed by the lessee Expected residual value of equipment at end of lease term Lease term Economic life of leased equipment Fair value of asset at January 1, 2017 Lessor's implicit rate Lessee's incremental borrowing rate $50,000 $45,000 6 years 6 years $600,000 8% 0% The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment