You work for ABC, a publicly-traded company that follows IFRS. You have collected the following information about a lease for a fleet of trucks used by ABC to transport completed manufactured equipment to warehouses and customers across the country. The trucks have an economic useful life of eight years. The lease term is from July 1, 2022, to June 30, 2029, and the company intends to lease the equipment for the entire seven year lease term. The lease payment per year is $747,500, payable in advance, with no other payments required, and no renewal option or purchase option available. The expected value of the fleet of trucks at June 30, 2029, is $492,750; this value is guaranteed by ABC. The leased trucks must be returned to the lessor at the end of the lease.

ABC's management is confident that, with an aggressive maintenance program, they have every reason to believe that the assets' residual value will be more than the guaranteed amount at the end of the lease term. ABC''s incremental borrowing rate is 8.25%, and the rate implicit in the lease is not known. At the time the lease was signed, the fair value of the leased trucks was $3,920,250.

1. Identify the type of lease that is involved and give reasons for your classification, based on the original information.

2. Determine the PV of the future cash flows under the lease at July 1, 2022. Show all supporting calculations.

3. Prepare an amortization schedule for the lease liability over the term of the lease. Round all amounts to the nearest dollar.

4. Prepare the journal entries and any year-end (December 31st) adjusting journal entries made by ABC in 2022 and up to and including July 1, 2023. Round all amounts to the nearest dollar.