On 15 August 20X1, Argyle Ltd. signed a three-year lease to rent a computer system from Basil Ltd. for \(\$ 10,000\) per month. The lease will commence on 1 October 20X1. Three months' rent is payable at the lease inception; remaining rent is due at the beginning of each month. Basil will install the system and have it operational by 31 October 20X1.

The value of the computer equipment is \(\$ 800,000\). Basil is acquiring this equipment specifically for leasing to Argyle. Basil estimates that its installation cost will be \(\$ 20,000\). Basil uses \(25 \%\) declining-balance depreciation for computer equipment, with no depreciation in the year of acquisition.

At the end of the lease, Argyle can either (1) terminate the lease and require Basil to remove the equipment, (2) renew the lease at the same monthly payment, or (3) negotiate a new lease with Basil for upgraded equipment.

Both companies have a 31 December fiscal year-end.

Required:

1. Prepare journal entries for Argyle for \(20 \mathrm{X} 1\) and, in summary form, for \(20 \mathrm{X} 2\).

2. Prepare journal entries for Basil for \(20 \mathrm{X} 1\) and, in summary form, for \(20 \mathrm{X} 2\).