XYZ Company, as lessee, enters into a lease agreement for equipment on July $1,2015.$ The following data

are relevant to the lease agreement:

$1.$ The term of the noncancelable lease is $4$ years, with no renewal option. Payments of $$782,757$ are

due on July $1$ of each year, beginning July $1,2015.$

$2.$ The fair value of the equipment on July $1,2015$ is $$2,800,000.$ The equipment has an economic life of

$6$ years with no salvage value.

$3.$ XYZ depreciates similar machinery it owns on the sum$-$of$-$the$-$years'$-$digits basis.

$4.$ The lessee pays all executory costs.

$5.$ XYZ$\text{'}$s 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.

Required

For XYZ Company:

$($a$)$ Indicate the type of lease XYZ Company has entered into and what accounting treatment is

applicable.

$($b$)$ Prepare the journal entries on XYZ$\text{'}$s books that relate to the lease agreement for the following dates:

$1.$ July $1,2015.$

$2.$ December $31,2015.$

$3.$ July $1,2016.$

$4.$ December $31,2016.$ Explain your solution