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.

$1.$ The cost of the photocopier is $$525,000$ and the fair value of the equipment on January $12013$ is $$700,000.$

$2.$ The term of the lease is $7$ years with no option to renew and the photocopier has an estimated useful life of $9$ years

$3.$ 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$)$

$4.$ The lease agreement requires annual rental payments beginning January $12013$

$5.$ 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 $31)$

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

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