On January $1,$ Year $1,$ Caswell Company signs a $10-$year cancelable $($at the option of either party$)$ agreement to lease a storage building from Wake Company. The following information pertains to this lease agreement:

$1.$ The agreement requires rental payments of $$100,000$ at the beginning of each year.

$2.$ The cost and fair value of the building on January $1,$ Year $1,$ is $$2$ million. The storage building has not been specialized for Caswell.

$3.$ The building has an estimated economic life of $50$ years, with no residual value. Caswell depreciates similar buildings according to the straight$-$line method.

$4.$ The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor.

$5.$ Caswell$$s incremental borrowing rate is $14\%$ per year. Wake set the annual rental to ensure a $16\%$ rate of return $($the loss in service value anticipated for the term of the lease$).$ Caswell knows the implicit interest rate.

$6.$ Executory costs of $$7,000$ annually, related to taxes on the property, are paid by Caswell directly to the taxing authority on December $31$ of each year.

Required:

$1.$ Determine what type of lease this is for the lessee.

$2.$ Prepare appropriate journal entries on the lessee$$s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for Year $1$ and Year $2.$