Each of the four independent situations below describes a lease requiring annual lease payments of $10,000. For each situation, determine the appropriate lease classification by the lessee and indicate why 

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Situation 1 2 4 Lease term (years) Asset's useful life (years) 4 4 4 4 5 6 Asset's fair value $44,000 $45,000 $41,000 $38,000 Purchase option that is reasonably certain to be exercised? No Yes No No Annual lease payments Lessor's implicit rate (known by lessee) Lessee's incremental borrowing rate Beg. of yr. End of yr. Beg. of yr. End of yr. 5% 6% 5% 6% 5% 5% 5% 5%