Calderwood Industries leases a large specialized machine to Youngstown Company at a total rental of $1,800,000, payable in five annual installments in the following declining pattern: 25% for each of the first two years, 22% in the third year, and 14% in each of the last two years. The lease begins January 1, 2008. In addition to the rent, Youngstown is required to pay annual executory costs of $15,000 to cover unusual repairs and insurance. The lease does not qualify as a capital lease for reporting purposes. Calderwood incurred initial direct costs of $15,000 in obtaining the lease. The machine cost Calderwood $2,100,000 to construct and has an estimated life of 10 years with an estimated residual value of $100,000. Calderwood uses the straight-line depreciation method on its equipment. Both companies report on a calendar-year basis.

Instructions:
1. Prepare the journal entries on Calderwood’s books for 2008 and 2012 related to the lease.
2. Prepare the journal entries on Youngstown’s books for 2008 and 2012 related to the lease.