Oriole Company, as lessee, enters into a lease agreement on July 1, 2021, for equipment. The following data are relevant to the lease agreement:

1. The term of the noncancelable lease is 4 years. Payments of $978,446 are due on July 1 of each year.

2. The fair value of the equipment on July 1, 2021 is $3,500,000. The equipment has an economic life of 6 years with no salvage value.

3. Oriole depreciates similar machinery it owns using the straight-line method.

4. The lessee pays all executory costs.

5. Orioles incremental borrowing rate is 10% per year. The lessee is aware that the lessor used an implicit rate of 8% in computing the lease payments.

(a) Indicate the type of lease Oriole Company has entered into and explain briefly.

(b) Prepare all the necessary journal entries on Orioles books that relate to the lease agreement for the 2021 and 2022. (Round all amounts to the nearest dollar with partial amortization schedule.) Oriole has a 12/31 year end.