Radar Industries Ltd. has signed a lease for equipment with an expected lifespan of five years and a fair market value of $220,000. The terms of the lease are as follows:

The lease term begins on January 1, 2022, and runs for 3 years.

The lease requires payments of $75,000 each December 31, which includes $5,000 for maintenance and insurance costs.

At the end of the initial lease term, the lease is renewable for another 2 years at the option of Radar for only $20,000 per year, including $1,000 for maintenance and insurance costs. The normal rental cost of similar used equipment is $30,000 per year.

At the end of the lease term, the equipment is to be returned to the lessor.

Radars incremental borrowing rate is 9%, and the company uses straight-line depreciation for similar equipment.

REQUIRED:

a) Calculate the present value of the minimum lease payments and indicate whether the lease is to be considered a capital or operating lease.

b) Prepare a lease amortization schedule.

c) Prepare the journal entries on the books of Radar Industries for 2022. Assuming they use ASPE