Finance lease — manufacturer lessor    LO3, 4, 7 Stella Ltd manufactures specialised machinery for both sale and lease. On 1 July 2019, Stella Ltd leased one of these machines to Freddy Ltd, incurring $1200 in costs to prepare and execute the lease document. Freddy Ltd incurred $650 in costs to negotiate the agreement. The machine being leased cost Stella Ltd $55 072 to manufacture. The machine is expected to have an economic life of 6 years, after which time it will have a residual value of $950. The lease agreement details are as follows. Length of lease 5 years Commencement date 1 July 2019 Annual lease payment, payable 30 June each year commencing 30 June 2020 $16 000 Residual value at the end of the lease term, fully guaranteed by Freddy Ltd $8000 Interest rate implicit in the lease 8% All insurance and maintenance costs are paid by Stella Ltd and amount to $3000 per year and will be reimbursed by Freddy Ltd by being included in the annual lease payment of $16 000. The machinery will be depreciated on a straight‐line basis. It is expected that Freddy Ltd will purchase the machine from Stella Ltd at the end of the lease. Required 1. State how Stella Ltd should classify the lease. Give reasons for your answer. 2. Calculate the fair value of the leased machine at 1 July 2019. 3. Prepare the journal entries to account for the lease in the books of Freddy Ltd for the year ended 30 June 2020. 4. Prepare a schedule of lease receipts for Stella Ltd. 5. Prepare the journal entries to account for the lease in the books of Stella Ltd for the year ended 30 June 2020.