In early 20X1 Picton Ltd., a public company, entered into a finance lease that required Picton to make $100,000 beginning-of-year payments for six years. The interest rate implicit in the lease was 7% and this was known to Picton. Picton’s IBR was 6%. For accounting purposes, Picton calculated the present value of the lease at 6%, obtaining a value of $521,236. This amount was used in 20X1 and 20X2 to account for the lease liability and for straight-line depreciation of the asset under lease. In 20X3, the chief accountant discovered that the company should have used the lessor’s rate implicit in the lease, as required by IFRS.

Required:
1. Determine the amounts relating to the lease that Picton included in its 20X1 and 20X2 SFP and SCI. The lease liability may be stated in total on the SFP; it is not necessary to subdivide the liability into current and long-term portions.
2. Determine the correct amounts that Picton should have reported.
3. Prepare journal entries necessary to retrospectively correct the errors. Assume a 20% income tax rate. The change relates to temporary differences and thus deferred tax is affected.