On 1 June 20X6 Marino Developments Inc. entered into a 12-month contract to lease a backhoe from Constructors Ltd. for $3,700 monthly with payments made at the beginning of each month. Marino’s annual incremental borrowing rate is 6% and Marino is not aware of the rate implicit in the lease. The backhoe will be returned to Constructors Ltd. at the end of the lease.

Required:
1. What journal entry is required on 1 June 20X6?
2. Repeat Requirement 1 but assume the contract contains an option to purchase the backhoe at the end of the 12 months, and Marino is expected to exercise this option.