Problem
York Industries leases a large specialized machine to Echo Company at a total rental of $1,400,000, payable in five annual installments in the following declining pattern: 24% in the first two years, 20% in the third and fourth years, and 12% in the last year. The lease begins January 1, 2013. In addition to the rent, Echo is required to pay annual executory costs of $18,000 to cover unusual repairs and insurance. The lease does not qualify as a capital lease for reporting purposes. York incurred initial direct costs of $18,000 in obtaining the lease. The machine cost York $1,900,000 to construct and has an estimated life of eight years with an estimated residual value of $120,000. York uses the straight-line depreciation method on its equipment. Both companies report on a calendar-year basis.
Prepare the journal entries on Echo's books for 2013 and 2017 related to the lease.