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Questiоns 15 - 18 On 1/1/2012, LP, Inc. enters intо а 12-yeаr nоn-cаncellable lease for a piece of machinery owned by RJ, Inc. The lease calls for annual payments of $30,000, payable at the end of each year of the lease (i.e. first payment is due on 12/31/12). At the end of the lease, the right to use the machine transfers back to RJ. LP, Inc. declined the opportunity to purchase the machine outright for $330,000, and the economic life of the machine is believed to be 25 years. There is also an option to renew the lease for an additional 8 years at a reduced rate of $20,000. This does represent a bargain renewal option for LP Inc, and they are reasonably certain to use it. LP uses a 6% discount rate to calculate present values, and generally uses straight-line amortization for leased assets. In addition, LP Inc spends $45,000 to customize the machinery for use in their factory. They believe that this customization has a useful life of 15 years. What type of lease is this, from LP’s perspective? What (if any) journal entries should LP record on 1/1/2012? What (if any) journal entries should LP record on 12/31/2013? Could this lease qualify for sale & leaseback treatment? Why?