ABC Company leased a manufacturing machine from XYZ Company on 1/1/2020 for 10 year terms. the lease terms are as follows:

a. XYZ assumes 10% interest

b. First rent is payable on 1/1/2020 and on 12/31 the remaining life of the lease.

c. Estimated economic life of the machine is 10 years.

d. Cost of the machine to XYZ is $500,000.

e. XYZ wants to recover its investment and earns a 10% return.

Use this PV table:

Present value of Annuity Due:

N=5, i=5%: 4.54595

N=5, i=10%: 4.16987

N=10, i=5%: 8.10782

N =10, i=10%: 6.75902

Present value of Ordinary Annuity:

n=5, i=5%: 4.32948

N=5, i=10%: 3.79079

N=10, i=5%: 7.72173

N =10, i=10%: 6.14457

Required:

A. What type of lease is this for ABC and XYZ?

B. Calculate the annual rent.

C. Make journal entries by both ABC and XYZ for the first year (1/1/20 to 12/31/20