On January 1, 2016, Caterpillar Inc. entered in a lease with Newmont Mining for a 797F mining truck. The term of the non-cancelable lease is ten years and payments are required on January 1 of each year. The first payment is due on January 1, 2017. Additional terms of the lease are as follows:

1. Newmont Mining has an option to purchase the mining truck for $300,000 when the lease expires at which time the fair value is expected to be $1,200,000.

2. The cost of the 797F mining truck to Caterpillar is $3,500,000. It has an estimated life of fifteen years and a salvage value of zero at the end of its lease due to extreme wear and tear. 3. Caterpillar sets lease payments to earn 6% on its investment.

4. Collectability of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by Caterpillar. 5. Caterpillar has a 12-31 year-end.

Required:

2. Prepare a lease amortization schedule for both the lessor and the lessee for the entire life of the lease.

3. Prepare the journal entries on the books of the lessor for the first and last year of the lease.

4. Prepare the journal entries on the books of the lessee for the first and last year of the lease.