Sharke Inc. was incorporated in 2017 to operate as a computer software service firm with an accounting fiscal year ending July 31. Sharke's primary product is an on-line inventory-control system; its customers pay a fixed fee plus usage charges for using the system.  

On August 1, 2018, Sharke leased a large computer system from the manufacturer. The lease terms are shown below:

Annual lease payment: $20,711.11 paid at the beginning of the year

Date of first payment: August 1, 2018

Lease Term: 5 years

Implied Interest Rate: 4%

Depreciation Method: Straight Line

Residual Value at the end of the lease $5,000.00 (Guaranteed by Sharke)

-Identify the criteria for determining finance leases

-Prepare an amortization schedule for this lease agreement

-Prepare, in general journal form, all entries Sharke should make in its accounting records for the first two fiscal years relating to this lease