On January 1, 2020, a machine was purchased for $1,060,000 by Skysong Co. The machine is expected to have an 8-year life with no salvage value. It is to be depreciated on a straight-line basis. The machine was leased to Sheridan Inc. for 3 years on January 1, 2020, with annual rent payments of $285,000 due at the beginning of each year, starting January 1, 2020. The machine is expected to have a residual value at the end of the lease term of $562,500, though this amount is unguaranteed.

b. Record the journal entries Skysong would record for 2020 on this lease, assuming its incremental borrowing rate is 5% and the rate implicit in the lease is unknown.

c. Suppose the lease was only for one year (only one payment of the same amount at commencement of the lease), with a renewal option at market rates at the end of the lease, and Skysong elects to use the short-term lease exception. Record the journal entries Skysong would record for 2020 on this lease.