On 1/1/2012 ABC, Inc. enters into a 6-year non-cancelable lease for a piece of machinery owned by XYZ, Inc. The lease calls for the following annual payments, payable at the end of each year of the lease:

2012 $2,000

2013 $2,000

2014 $2,000

2015 $3,000

2016 $3,000

2017 $3,000

At the end of the lease, ownership and the right to use the machine reverts back to XYZ, and there is no option to purchase the machine at the end of the lease term. XYZ, Inc. purchased this machine on 12/31/2011 for $46,320, and the economic life of the machine is believed to be 20 years. Both ABC, Inc. and XYZ, Inc. use an 8% discount rate to calculate present values.

What type of lease is this from the perspective of XYZ, Inc.?

Group of answer choices Capital - Sales Type Lease Operating

Capital - Direct Financing Lease

What (if any) journal entry(ies) should XYZ, Inc. record on 12/31/2012 (Note, you can ignore depreciation)?

What (if any) journal entry(ies) should XYZ, Inc. record on 12/31/2016 (Note, you can ignore depreciation)?