Sharpist is a car dealer that sells new cars to customers. Either the customers can purchase the cars using cash or Sharpist will provide lease alternatives to customers. On 28 December 2023, Sharpist leased a car to Quifil Ltd. The lease term is 6 years, with annual payments of $8,400 due at the beginning of the year. The first payment is due 1 January 2024. The rate implicit in the lease is 8.25%. The car is carried on Sharpists booked at a cost of $37,000. The unguaranteed residual value at the end of the Iease is $4,000 with 2 years of useful life remaining. There were no material cost uncertainties at the inception of the lease.

1. Determine how to classify each type of lease: operating, financing, or manufacturer/dealer. Explain your reasoning.

2. Prepare the journal entries for the first year of the lease, assuming each company has a 31 December year-end. For financing-type leases, use the net method.

3. Explain the accounting under ASPE