The Raeford Company, a dealer in equipment, leases non-specialized equipment to Bragg Corp. beginning January 1, 2021. The lease terms, provisions, and related events are as follows:

1. The lease term is five years. The lease is noncancelable and requires equal rental payments to be made at the beginning of each year, starting Jan. 1, 2021.
2. The fair value of the equipment is $500,000, the equipment has a carrying value as of Jan. 1, 2021 of $430,000.
3. The lease contains an option for the lessee to purchase the equipment at the end of the lease term for $40,000. It is probable that Bragg will exercise this clause.
4. The equipment has an estimated life of eight years.
5. Bragg agrees to pay all executory costs.
6. The lease contains no renewal option.
7. Raefords interest rate implicit in the lease is 8%.
8. Raefords initial direct costs are $4,500 and paid at the signing of the lease.
9. The collectability of the rentals is reasonably assured.

Required

1. Determine how Raeford should classify this lease.
2. Calculate the amount of the equal rental receipts.
3. Prepare a table summarizing the lease receipts and interest revenue earned by Raeford over the life of the lease.
4. Prepare journal entries for Raeford for the years 2021 and 2022.
5. Over how many years should Bragg, the lessee, amortize the right of use asset?