Problem - Access Limited has decided to lease office equipment with a fair market value of $580,000. The lease is with the Imperial Leasing Corporation, a U.S.-based subsidiary of a Japanese financial firm. The terms of the lease are as follows:

The initial lease term is five years. The lease commences on 1 January 20X1.

For the initial lease term, payments are $105,000 annually, made at the beginning of each lease year. Each payment includes an estimated $5,000 for insurance.

There is a renewal term at the lessee's option for a further three years. Payments during the renewal term are $43,000, including $3,000 for insurance.

Access Limited guarantees a residual value of $150,000 at the end of the first term if the renewal option is not exercised. If Access does renew, there will be no requirement to guarantee a residual value.

If Access Limited did not lease the equipment from Imperial Leasing Corporation, the company would incur an incremental borrowing rate of 8%.

Required:

Is the lease a finance lease or an operating lease for Access Limited? Why?

Prepare a lease amortization schedule.

Prepare entries for Access Limited for 20X1, assuming the company has a 31 December year-end and uses straight-line depreciation.

Prepare entries for Access Limited for the calendar year 20X1, assuming the company has a 31 March year-end instead.

Assuming that the company has a 31 March year-end, how would the lease liability appear in Access Limited's SFP at 31 March 20X1? Access Limited uses current-non-current classification.