Diablo Company (lessee) leased a machine from Juniper Corporation (lessor) on January 1, 2013. The machine has a fair value of $20,000,000. The lease agreement calls for four equal payments at the en

Diablo Company (lessee) leased a machine from Juniper Corporation (lessor) on January 1, 2013. The machine has a fair value of $20,000,000. The lease agreement calls for four equal payments at the end of year in the amount of $6,309,410. The useful life of the machine was expected to be four years with no residual value. The appropriate interest rate for this lease is 10%. The ownership of the machine reverts to Diablo at the end of the lease. Both Diablo and Juniper use the straight-line method for depreciation.

Required:

a. Prepare the journal entry for Diablo Company at the inception of the lease on January 1, 2013.

b. Prepare the journal entry or entries for Diablo Company on December 31, 2013 with respect to the lease and the leased asset.

c. Prepare the journal entry or entries for Diablo Company on December 31, 2014 with respect to the lease and the leased asset.

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