Databay Company, a lessee, enters into a lease agreement on July 1, 2012, for equipment. The following data are relevant to the lease agreement:

• The term of the noncancelable lease is 4 years, with no renewal option. Payment of $845,378 are due on June 30 of each year.
• The equipment has an economic life of 6 years with no salvage value.
• Databay depreciates similar machinery it owns on the straight-line basis.
• The lessee pays all executor costs.
• Databays incremental borrowing rate is 10% per year. The lessee is aware that the implicit rate is 8%.
• The fair value of the equipment is $2,800,000.

Instructions:

a.)Indicate the type of lease that Databay Company has entered into and what accounting treatment is applicable.

b.)Prepare the journal entries on Databays books that relate the lease agreement for the following dates: (Round all amounts to the nearest dollar. Include a partial amortization schedule.)