Recording Entries for Finance Lease-No Residual, Renewal Terms On January 1, 2020, Lessee Inc. enters into a 5-year equipment lease agreement for $12,000 annually (first payment due immediately). The lease grants the lessee an option to renew the lease for an additional 3 years. Lease payments adjust to current market rates for equivalent rentals at the time of renewal. Lessee Inc. is reasonably certain that it will exercise the renewal option due to the customization of the equipment. The estimated useful life of the equipment is 10 years. The lessee is not aware of the implicit rate of the lease, but the lessee's incremental borrowing rate is 6%. a. How would Lessee Inc. classify the equipment lease? Finance Lease b. Prepare an amortization schedule of the lease liability. Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Note: Include any net rounding difference to Lease Liability in the Interest on Liability amount for Jan. 1, 2027. Lease Interest Reduction of Payment on Liability Lease Liability Lease Liability Date Jan. 1, 2020 $ 0 Jan. 1, 2020 $ 12,000 $ 0 $ 12,000 0 Jan. 1, 2021 12,000 0 0 0 Jan. 1, 2022 12,000 0 0 0 Jan. 1,2023 12,000 0 0 0 Jan. 1,2024 12,000 0 0 Jan. 1, 2025 12,000 0 0 Jan. 1, 2026 12,000 0 0 0 Jan. 1, 2027 12,000 0 0 0 Total $ 96,000 $ 0 $ 0 c. Prepare the entries for Lessee Inc. for years 2020 and 2021. Note: Round your answers to the nearest whole dollar. Date Account Name Dr. Cr. Jan. 1, 2020 0 0 To record asset and liability related to lease Jan. 1, 2020 0 0 0 0 To record lease payment Dec. 31, 2020 0 0 0 0 To record interest Dec. 31, 2020 0 0 0 0 To record amortization Jan. 1, 2021 0 0 0 0 To record lease payment Dec. 31, 2021 0 0 0 0 To record interest Dec. 31, 2021 0 0 0 0 To record amortization