On January $1,2021,$ the lease commencement date, Abatkyzy Manufacturing Corporation $($lessor$)$ agreed to lease a piece of non$-$specialized, heavy equipment to Borneman Products, Inc $($lessee$).$ Abatkyzy paid $$900,000$ to manufacture the machine and carries it at this amount in its inventory. The fair value $($current selling price$)$ of the machine is $$929,049.$ The relevant lease terms follow.

Annual rental payments of $$240,000$ are due on December $31$ of each year. However, the first payment is due at the commencement of the lease. The lease payments do not include any other lease components such as insurance or sales taxes.

Lease term is $4$ years.

There is no purchase option.

The Borneman guarantees a residual value of $$60,000$ at the termination of the lease. This amount is equal to the expected residual value and there is no unguaranteed residual asset. Assume that Borneman uses the guaranteed residual value as the salvage value for purposes of determining a depreciable base.

The economic life of the asset is $7$ years.

Abatkyzy$$s $6\%$ implicit rate reflected in the lease is known to Borneman Products, Inc.

Borneman$$s incremental borrowing rate is $8\%.$

Annual maintenance is $$10,000$ and annual training is $$7,700.$ Borneman pays both at the end of the year to an independent third$-$party vendor. Borneman classifies these costs as general and administrative expenses.

Abatkyzy indicates that collectability of all lease payments is reasonably assured, and it is probable that the residual value will be fully recovered.

Borneman depreciates $($amortizes$)$ similar equipment using the straight$-$line method.

Required:

Determine whether this is an operating or a finance lease for Borneman and an operating, sales$-$type, or direct financing lease for Abatkyzy.

Prepare the amortization table for the entire lease term.

Prepare Borneman$$s journal entries required for each year of the lease term assuming that the equipment is returned with a fair value of $$60,000.$

Prepare Abatkyzy$$s journal entries required for each year of the lease term assuming that the equipment is returned with a fair value of $$60,000.$

Prepare the December $31,2024,$ journal entry for Borneman assuming that the equipment is returned with a fair value of $$45,000.$

Prepare the December $31,2024,$ journal entry for Abatkyzy assuming that the equipment is returned with a fair value of $$45,000.$