On January 1, 20X1, ABC Company manufactures an X-ray machine with an estimated life of 10 years and leases it to QM Medical Center for a period of 10 years. The normal selling price of the machine is $595,678, and its guaranteed residual value at the end of the non-cancelable lease term is estimated to be $15,000. The annual lease payment is $65,000 (assuming payments are to be made in advance on December 31 of each year except for the first one). ABC Company incurred costs of $315,000 in manufacturing the machine. Implicit interest rate is 5%. The asset reverts to the lessor at the end of the lease term and expected residual value is zero.

Required:

1. Prepare journal entries to record the lease for QM Medical Center (lessee) for the year 20X1.

2. Prepare journal entries to record the lease for ABC Company (lessor) for the year 20X1