E7.16 On January 2, 20X6, Davis Manufacturing Company (lessee) leased factory equipment from Leasing Specialists, Inc. (lessor) for an 8 year period. The present discounted value of the lease payments from the lessee's perspective totals $288,000. The estimated useful life of the equipment is 10 years and its fair value is $300,000. Title to the equipment does not transfer to the lessee at the end of the lease. a) Does the lessee have an operating lease or a capital lease in this case? b) If the lessee has a capital lease, what entry, if any, is needed on January 2, 20X6