Tango Corporation, a private corporation following ASPE, has acquired equipment with a fair market value of $145,000 on January 1, 2021. Tango signed a 5-year lease agreement that requires annual lease payments of $24,000 beginningon January 1, 2021. The leased equipment will go back to the lessor after the lease term. Tango has the optionto purchase the equipment at the end of the lease term at the equipment's fair market value at that time. The economic life of the equipment is 8 years and the present value of the lease payments is $100,077.

Instructions:

1. Analyze the details of the lease agreement and determine whether it should be classified as an operating or a capital lease by Tango Corporation in accordance with ASPE. ( 2 Marks )
2. Based upon your answer in a), prepare the journal entry that would be made by Tango Corporation on January 1, 2021. ( 2 Marks )