On 1 January 2016, Finley entered into a 3 year lease for a machine from Dawood, agreeing to pay $95,000 every year on its 31^st December. Finley will also incur $4,000 of initial direct costs. The machine has an estimated useful life of 5 years and the rate implicit in the lease contract is 10%. In addition to this, the contract has a clause stating that Finley has an option to extend the lease period for a year, and Finley is reasonably certain that he will avail this option. The annual payment will remain same, in the extended lease term.

a. How the lease will be initially recorded on 1 January 2016 (Journal entries)? (5 marks) b. Help Finley in doing subsequent measurements along with the journal entries on 31 December 2016? (7 marks) c. What will be shown in the financial statements for the year ended 31 December 2016? (8 marks)