Rocky Corporation leased industrial equipment to Indian Manufacturing on January 1, 2019. The following facts pertain to the lease:

1. The lease term is 4 years.

2. The annual lease payment is due at the beginning of each year starting on January 1, 2019. Each annual lease payment is $269,282

3. Ownership does not transfer at the end of the lease term and there is no bargain purchase option.

4. The asset is not of a specialized nature.

5. The industrial equipment has a fair value of $1,000,000, a book value to RockyCorporation of $900,000, and a useful life of 5 years. Indian Manufacturing depreciates similar equipment using the straight-line method.

6. The lease contains a guaranteed residual value of $50,000. The expected residual value is greater than $50,000.

7. Rocky Corporation wants to earn a return of 8% on the lease, and collectability of the payments is probable. This rate is known by Indian Manufacturing.

8. Indian Manufacturings incremental borrowing rate is 6%.

Instructions:

(a) How would Rocky Corporation (lessor) and American Manufacturing (lessee) classify this lease? Explain your answer with support.

(b) Prepare the Lease Amortization Schedule for Indian Manufacturing (Lessee).

Date	Lease Payment	Interest on Lease Liability	Reduction of Lease Liability	Lease Liability
01/01/2019
01/01/2019
01/01/2020
01/01/2021
01/01/2022