Mullen equipment company both leases and sell its equipment to its customers. The most popular line of equipment includes machine that costs $280,000 to manufacture. The standard lease terms provide for five annual payments of $110,000 each (excluding executory costs), with the first payment due when the lease is signed and subequent payment are due on December 31 of each year. The implicit rate of interest in the contract is 10% per year. Walton Tool Co. leases one of theses macines on January 2,2015. Initial direct cost of $20,000 are incurred by Mullen on January 2,2015, to obtain the lease. Walton's incremental borrowing rate is determined to be 12%. The equipment is very specialized, and it is assumed it will have no salvage value after five years. Assume that the lease qualifies as a capital lease and a sales-type lease for leesee and lessor,respectively. Also assume that both the lessee and lessor are on a calendar -year basis and that the lessee is aware of the lessor's implicit interest rate.

Instructions:

1. Give all entries required on Walton's book and Mullen book's for the year 2015 and 2016.

2. Prepare the balance sheet section involving lease balances for both lessee and lessors' financial statement at December 31, 2016.

3. Determine amount of expense and revenue Walton and Mullen will report for 2015 and 2016