Adden Company signs a lease agreement dated January 1, 2016,that provides for it to lease heavy equipment from Scott RentalCompany beginning January 1, 2016. The lease terms, provisions, andrelated events are as follows: 1. The lease term is 4 years. Thelease is noncancelable and requires annual rental payments of$20,000 to be paid in advance at the beginning of each year. 2. Thecost, and also fair value, of the heavy equipment to Scott at theinception of the lease is $68,036.62. The equipment has anestimated life of 4 years and has a zero estimated residual valueat the end of this time. 3. Adden agrees to pay all executorycosts. 4. The lease contains no renewal or bargain purchase option.5. Scott’s interest rate implicit in the lease is 12%. Adden isaware of this rate, which is equal to its borrowing rate. 6. Addenuses the straight-line method to record depreciation on similarequipment. 7. Executory costs paid at the end of the year by Addenare: 2016 2017 Insurance, $1,500 Insurance, $1,300 Property taxes,$6,000 Property taxes, $5,500 Required: 1. Next Level Examine andevaluate each capitalization criteria and determine what type oflease this is for Adden. 2. Prepare a table summarizing the leasepayments and interest expense for Adden. 3. Prepare journal entriesfor Adden for the years 2016 and 2017.