3. At the beginning of current year, Hazel Company sold a machine and immediately leased it back. The following data pertain to

the sale and leaseback transaction:

Sale Price at below fair value

4,000,000

Fair value of machine

4,500,000

Carrying amount of machine

3,600,000

Annual rental payable at the end of each year

500,000

Remaining life of machine

10 years

Lease term

3 years

Implicit interest rate

6%

Required: (do not round off the present value factor)

a. What amount should be reported as initial lease liability?

b. What is the cost of right of use asset?

c. What amount should be reported as gain on right transferred to the buyer-lessor?

d. What is the net annual rent income of the buyer-lessor?