E$21\mathrm{.}17($LO $3,4)($Accounting for an Operating Lease$)$ On January $1,2020,$ Nelson Co$.$ leased a

building to Wise Inc. The relevant information related to the lease is as follows.

The lease arrangement is for $10$ years. The building is expected to have a residual value at the end of

the lease of $$3,500,000($unguaranteed$).$

The leased building has a cost of $$4,000,000$ and was purchased for cash on January $1,2020.$

The building is depreciated on a straight$-$line basis. Its estimated economic life is $50$ years with no

salvage value.

Lease payments are $$275,000$ per year and are made at the beginning of the year.

Wise has an incremental borrowing rate of $8\%,$ and the rate implicit in the lease is unknown to Wise.

Both the lessor and the lessee are on a calendar$-$year basis.

Instructions

a$.$ Prepare the journal entries that Nelson should make in $2020.$

b$.$ Prepare the journal entries that Wise should make in $2020.$