6. Gregory Ltd enters into a noncancellable fiveyear lease agreement with Sanders Ltd on 1 July 2012. The lease is for an item of machinery that, at the inception of the lease, has a fair value of $231 140' The machinery is expected to have an economic life of seven years, after which time it will have no residual yalue. There is a bargain purchase option, which Gregory Ltd will be able to exercise at the end of the fth year, for $50 000. Sanders Ltd manufactures the machinery. The cost of the machinery to Sanders Ltd is $200 000. There are to be ve annual payments of $62 500, the rst being made on 30 June 2020. included within the $62 500 lease payments is an amount of $6250 representing payment to the lessor for the insurance and maintenance of the machinery. The machinery is to be depreciated on a straightline basis. The rate of interest implicit in the lease is 12 per cent. REQUIRED Prepare the journal entries for the years ending 30 June 2020 and 30 June 2021 in the books of: {a} Sanders Ltd lb} Gregory Ltd