On January 1, 2023, Renewal Inc leased high-tech gear for his car from High Tech Solutions. The useful life of the gear is 12 years. The initial lease calls for annual lease payments of $150,000 on January 1 of each year beginning at the inception of the lease. The initial lease term is eight years. The lease provisions include a renewal option that extends the lease term by four years (for a total of 12 years). The renewal option must be exercised at the end of year three and calls for a penalty of $500,000 to be paid at the end of year eight if it is not exercised. Renewals incremental borrowing rate is 9% and High Tech Solutions implicit rate is unknown.

A. Prepare Renewals 1/1/2023 journal entry/entries to record the lease.

B. Prepare Renewals 12/31/2023 journal entry/entries related to the lease.

C. What amounts does Renewal report on their 12/31/2023 Balance Sheet?