Marcos Inc. leased a new machine from East Inc. on June 1, 2020, under the following conditions:

Lease Term - 10 years Annual rental payable at the beginning of each lease year - $40,000 Useful life of the machine - 12 years Implicit interest rate of the lease - 14% Present Value factor for an annuity of 1 in advance for 10 periods at 14% - 5.95

There is no option to purchase the machine and lease is non-cancelable.

Required

1. What is the type of this lease for Marcos Inc. as being the lessee of the lease agreement?

   Please explain your reasoning for the type of the lease agreement.

2. What is the necessary journal entry for Marcos Inc. on June 1, 2020.