$7\mathrm{.}2$ Lease Accounting On $1/1/20$X$1,$ Investor, Inc. $("$Lessee$")$ signed a Lease Agreement with

Developer Inc. $("$Land$-$ lord"$)$ to lease Landlord's newly constructed hotel located at $1001$

Jefferson Ave. in Springfield, CA$.$ The lease term is $15$ years, and the estimated life of the

building is $40$ years. Lessee will occupy all four floors of the building. The lease includes a

renewal option, exercisable at the Landlord's option, to extend the contract for an additional

five$-$year term. No purchase option is present in the contract. Lessee's monthly rental payments

are $$50,000$ per month, due on the first of each month, and the monthly rental fee will escalate

by $2\%$ on Jan. $1$ of each subsequent year of the contract. Lessee must also pay a monthly

supplemental rental cost based on a percentage $(1\%)$ of its sales. From experience, Lessee

estimates that $1\%$ of its sales should approximate an additional $$10,000$ per month. As of

$\frac{1}{1}\frac{?}{20}1,$ the appraised value of the building is $$17$ million. There are no residual value

guarantees present.

You are a corporate accountant for Investor, Inc. and have been asked to prepare an accounting

issues memo documenting the accounting for this lease. Document all issues relevant to the

initial recognition and subsequent accounting for this lease. You can assume that the

arrangement is within the scope of lease accounting guidance. Support your responses with

guidance from the Codification and as needed, firm guidebooks.

a$)$ Also include the journal entries necessary to record this lease at $\frac{12}{31}\frac{?}{x1},\frac{12}{31}\frac{?}{x2},$

and $\frac{12}{31}\frac{?}{x3}.$

b$)$ Lastly, describe the line items necessary to report this lease in Investor, Inc's balance

sheet, income statement, and statement of cash flows.