How to account for an operating lease for a 3-year period from Jan. 1, 20X1, to Dec. 31, 20X3? The lessee agrees to pay $10,000 in year 1, $12,000 in year 2, and $13,000 in year 3. The lessee is required to pay the annual fee on Jan. 1 of each contract year. The lessee's incremental borrowing rate is 5%, what are the entries that the lessee and lessor should record at inception of the contract, then at the end of years 1, 2, and 3?