The following data are available regarding a noncancelable lease.

Lease term is five years, beginning June $1$ of Year $1.$

The lease property cost the lessor $$400,000,$ its fair value, on June $1.$

Estimated useful life of the asset is six years; residual value at the end of the five$-$year useful life is $$20,000,$ unguaranteed.

No purchase option is available to the lessee. Ownership is retained by lessor at the end of the lease term.

Five annual lease payments are payable on June $1$ of each year $($starting immediately$)$ to yield the lessor a $6\%$ return $($implicit interest rate$).$ Lessee does not know and cannot reliably estimate the lessor's implicit rate. Lessee's incremental borrowing rate is $7\%.$

Lessee's credit rating is excellent. The accounting year end for the lessee is December $31.$

Required

a$.$ Compute the annual lease payment calculated by the lessor.

b$.$ Determine the $(1)$ lessee's lease classification and $(2)$ initial lease liability balance.

c$.$ Provide journal entries for the lessee on $(1)$ June $1$ and $(2)$ December $31$ of Year $1.$

d$.$ What balances $($account titles and amounts$)$ appear on the lessee's balance sheet on December $31$ of Year $1$ related to the lease?

e$.$ What balances $($account titles and amounts$)$ appear on the lessee's income statement for Year $1$ related to the lease?