(This problem requires use of present value tables.)
Cambridge Company leased equipment from Amherst Company on January 1, 2014. Information about the lease is as follows: 
Required:
a.Compute the present value of the minimum lease payments.
b.Classify the lease from the viewpoint of Cambridge Company, giving reasons.
c.Prepare Cambridge's journal entry or entries for the lease for 2014.
Definitions:
Default Risk Premium
The additional return that an investor demands for taking on the risk that the borrower may default on the loan.
Liquidity Risk Premium
An additional return that investors require for holding securities with less liquidity, compensating for the risk of not being able to sell quickly at the fair market price.
Inflation Rate
The speed at which the average price of goods and services increases, leading to a decrease in buying power.
Pure Rate
Pure rate, in finance, could refer to the actual interest rate without the influence of inflation or to the risk-free rate of return, which is the theoretical return of an investment with zero risk.
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