On January $1,2013,$ Boss Limited signed off on a leasing contract with MR Stationery to lease a specialized, state$-$of$-$the$-$art photocopier. The following information relates to the lease contract.

The cost of the photocopier is $$525,000$ and the fair value of the equipment on January $12013$ is $$700,000.$

The term of the lease is $7$ years with no option to renew and the photocopier has an estimated useful life of $9$ years

At the end of the lease term, the photocopier must be returned to the Boss Limited. It has a guaranteed residual value of $$50,000.$ MR Stationery uses the straight line method of depreciation $($when applicable$)$

The lease agreement requires annual rental payments beginning January $12013$

Boss Limited desires a $5\%$ rate of return which is known to MR$.$ MR Stationery$$s incremental borrowing rate is $7\%.$

Requirements: $($Assume the financial year ends on December $31)$

Discuss the nature of the lease for the lessee using the $5$ tests criteria

Prepare the lease schedule for the lessee

Prepare the necessary journal entries for January $12013$ and Dec $312013$

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