1. On January 1, 20X4, Masons Equipment Inc. (MEI), an equipment manufacturer, entered into a new arrangement, as the lessor, to lease equipment with the following terms: 
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3. • An annual lease payment of $80,000 is due at the beginning of each year. 
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5. • The lease term is six years. 
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7. • At the end of the lease, there is a guaranteed residual value of $25,000.
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9. • The lease has an implied interest rate of 5.4%. 
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11. • The equipment has a cost of $345,000, which is included in inventory. 
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13. • The selling price of the equipment is $460,000, which represents fair market value. 
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15. • The economic useful life of the equipment is eight years. 
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17. Required 
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19. a) Determine the classification of the lease. 
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21. b) Prepare all the journal entries for 20X4 related to this lease. Note that MEI has a December 31 year-end.

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