Conroy Company leased equipment on January 1. Information pertinent to the lease is as follows: The lease term is 6 years. Annual payments of $60,000 are due on January 1 of each year; the first payment was made at the inception of the lease. Conroys incremental borrowing rate is 12%. The implicit interest rate is 10%; Conroy knew the implicit interest rate. The unguaranteed residual value is $50,000. The useful life of the equipment is 10 years. Conroy uses the straight-line depreciation method. The fair value of the equipment is $325,000.The lease agreement did not contain either a bargain purchase option or a transfer of title.

Required: Prepare all the necessary journal entries for the year ended December 31, 20X1 with respect to Conroy Companys lease.