The ABC Corporation leased an equipment from XYZ company with the following terms:

o Lease term is for 5 years while the estimated economic life of the equipment is 10 years.

o Annual rent of $100,000 with the first rent is payable on 1/1/2021 and on 12/31/2021 for remaining years.

o Assumed interest rate of 10%.

o The cost of the machine to Brooklyn is $600,000.

o No transfer of title or bargain purchase option was granted at end of lease term.

(PV of Annuity Due n=5 and r=10%: 4.169870)

(PV of Ordinary annuity n=5 and r=10%: 3.79079)

Required:

A. What type of lease is this to both ABC and XYZ Companies?

B. Make necessary journal entries for the first year of the lease by both Lessee and Lessor.