On 1 January 20X6 Canadian Leasing Inc. leased a piece of machinery to Ornamental Concrete Ltd., with the following terms:
• The lease is for five years; Ornamental cannot cancel the lease during this period.
• The lease payment is $79,600 per year including insurance payments. Based on allocating the lease payment on relative stand-alone prices, the lease component is $71,700 and the non-lease component for insurance is $7,900.On 1 January 20X6 Canadian Leasing Inc. leased a piece of machinery to Ornamental Concrete Ltd., with the following terms:
• The lease is for five years; Ornamental cannot cancel the lease during this period.
• The lease payment is $79,600 per year including insurance payments. Based on allocating the lease payment on relative stand-alone prices, the lease component is $71,700 and the non-lease component for insurance is $7,900.

• At the end of the five-year initial lease term, Ornamental can elect to renew the lease with an extension option for one additional five-year term at a price of $29,500, including
$2,500 of estimated insurance costs with the amounts allocated based on relative standalone prices. Market rentals are approximately twice as expensive.
• At the end of the first or second lease term, the leased asset reverts to the lessor.
• Lease payments are due at the beginning of each lease year.
• Ornamental could borrow money to buy this asset at an interest rate of 8%. The equipment has a fair market value of $430,000 at the beginning of the lease term and a useful life of approximately 12 years.

Required:
1. For this lease, provide the:
a. Lease term;
b. Residual value guarantee;
c. Residual value unguaranteed;
d. Purchase option;
e. Extension option;
f. Lease liability on 1 January 20X6; and
g. Incremental borrowing rate.
If these amounts do not exist in the above lease, enter “none” as your response. State any assumptions.
2. Prepare the journal entry on 1 January 20X6 to be recorded in Ornamental’s books.