Lease classification, accounting by lessor  LO4, 6, 7 Oceans Ltd manufactures specialised moulding machinery for both sale and lease. On 1 July 2020, Oceans Ltd leased a machine to Eleven Ltd. The machine being leased cost Oceans Ltd $195 000 to make and its fair value at 1 July 2020 is considered to be $212 515. The terms of the lease are as follows. The lease term is for 5 years, starting on 1 July 2020 Annual lease payment, payable on 30 June each year $57 500 Estimated useful life of machine (scrap value $2500) 8 years Estimated residual value of machine at end of lease term $37 000 Residual value guarantee by Eleven Ltd $25 000 Interest rate implicit in the lease 10% The annual lease payment includes an amount of $7500 to cover annual maintenance and insurance costs. Eleven Ltd may cancel the lease but only with the permission of the lessor. Eleven Ltd intends to lease another machine from Oceans at the end of the lease term. Required 1. Classify the lease for Oceans Ltd. Justify your answer. 2. Prepare

(a) the lease receipts schedule for Oceans Ltd (show all workings) and

(b) the journal entries in its books for the year ended 30 June 2021. 3. Assuming that Eleven Ltd can cancel the lease without incurring any penalties, prepare the journal entries in the books of Oceans Ltd for the year ended 30 June 2021.