P$20\mathrm{.}16$B $($LO $3)($Operating Lease$)$ Low Falls Corporation entered into a lease agreement on January $1,2025,$ to provide Amazon Fleet Company with a piece of machinery. The terms of the lease agreement were as follows:

The lease is to be for $3$ years with rental payments of $$9,249$ to be made at the beginning of each year.

The machinery has a fair value of $$61,000,$ a book value of $$47,000,$ an end$-$of$-$life salvage value of $$0$ and an economic life of $8$ years.

At the end of the lease term, both parties expect the machinery to have a residual value of $$40,000,$ none of which is guaranteed.

The lease does not transfer ownership at the end of the lease term, does not have a bargain purchase option, and the asset is not of a specialized nature.

The implicit rate is $5\%,$ which is known by Amazon Fleet.

Colle$$tibility of the payments is probable.

Assume that the lessor uses straight$-$line depreciation.

Instructions

$($Round all numbers to the nearest dollar.$)$

a$.$ Evaluate the criteria for classification of the lease, and describe the nature of the lease.

b$.$ Prepare the amortization schedules Amazon Fleet will use over the lease term.

c$.$ Prepare the $2025$ journal entries for Amazon Fleet.

d$.$ Prepare the $2025$ journal entries for Low Falls.

e$.$ Suppose the lease were only for one year instead of $3$ years, with just one lease payment at the beginning of the lease term. Prepare any journal entries Amazon Fleet would need, assuming it elects to use the short$-$term lease option.