On January 1, 2019, Lessor Company leased a building to Lessee Company. The relevant information related to thisoperating leaseis as follows:

• The lease arrangement is for 5 years.
• The leased building cost $5,000,000 and was purchased for cash in 2016.
• The building is depreciated on a straight-line basis. Its estimated economic life is 20 years with no salvage value.
• Lease payments are $300,000 per year and are paid at the beginning of the year.
• Both the lessor and the lessee are on a calendar-year basis.
• The implicit rate on the lease is 10%, which is known to all parties.

The present value of an annuity due of $1 for 5 periods at 10% is 4.17.

Instructions

1. Make the journal entries for Lessor Company in 2019.
2. Make the journal entries for Lessee Company in 2019.