Question 1 Cornwall Enterprises Limited leased a machine on January 1. 2018. At the date of the lease agreement, the asset has an estimated useful life of five years. However, the agreement is expected to expire on December 31, 2019. Cornwall depreciates similar assets over five years using a straight line basis. The annual lease payments are made on December 31st of each year. The lease payments are $2,500,000 per year, which includes insurance expense of $100,000 per year. Cornwall is required to insurance the asset based on the agreement. The entity has incremental borrowing rate of 16%, but the rate implied in the lease is only 12% per annum. To assist with initiating the lease, the lessee incurred legal fees of $500,000 which was paid to its attorneys on January 1,2018. Required: a. Prepare a journal entry to recognise the lease at its inception. b. Prepare the year end journal entries over the life of the lease. c. How are lease incentives treated as it relate to right of use assets