Sandhill Company leases a building to Teal Mountain, Inc. on January $1,2025.$ The following facts pertain to the lease agreement.

The lease term is $5$ years, with equal annual rental payments of $$3,539$ at the beginning of each year.

Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a

specialized nature.

The building has a fair value of $$17,800,$ a book value to Sandhill of $$10,800,$ and a useful life of $6$ years.

At the end of the lease term, Sandhill and Teal Mountain expect there to be an unguaranteed residual value of $$3,730.$

Sandhill wants to earn a return of $8\%$ on the lease, and collectibility of the payments is probable. Teal Mountain was unaware

of the implicit rate used in the lease by Sandhill and has an incremental borrowing rate of $9\%.$

Click here to view factor tables.

How would Sandhill $($lessor$)$ and Teal Mountain $($lessee$)$ classify this lease?

Sandhill would classify the lease as a

lease.

Teal Mountain would classify the lease as a

lease.

How would Sandhill initially measure the lease receivable, and how would Teal Mountain initially measure the lease liability and right$-$

of$-$use asset? $($For calculation purposes, use $5$ decimal places as displayed in the factor table provided and round final answers to $0$ decimal

places, e$.$g$.5,275.)$

Lease receivable

Present value of rental payments $

Teal Mountain

Lease liability$/$Right$-$of$-$use asset $