Question :

Diablo Company (lessee) leased a machine from Juniper Corporation (lessor) on 1^st January, 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. Purpose the journal entry for Diablo Company at the inception of the lease on 1^st January, 2013.

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

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