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

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 $1,2015.$

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.

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

The lessee pays all executory costs.

$xYZ\text{'}$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:

July $1,2015.$

December $31,2015.$

July $1,2016.$

December $31,2016.$

Explain your solution