Assume Bruce Ltd (lessee) has entered into a leasing arrangement with Wayne Ltd (lessor) for some equipment. The terms are as follows:

The lease is for 4 years and commences on the 1 July 2021.

As an incentive to enter the lease the lessee agrees to a rent free period for the first year of the lease.

There is no initial payment at the commencement of the lease. There are 3 payments of $45,000 payable on 1 July each year commencing from 1 July 2022.

The fair value of the equipment was $123,500

The equipment has an estimated economic life of 8 years, with a residual (scrap) value of $6,500 at the end of its economic life.

The residual value at the end of the lease term is $13,000.

The interest rate implicit in the lease is 8% p.a.

The lessee incurred costs of $900 in direct costs relating to the lease. Costs of $2,000 were incurred by the lessor.

Bruce Ltd has guaranteed all of the residual value at the end of the lease term.

Bruce Ltd will return the equipment to the lessor at the end of the lease term.

It is expected that Bruce Ltd will be not required to pay any of this guaranteed residual value at the end of the lease, as the equipment is expect to realise at least $16,000 at the end of the lease.

Required: (a) Determine the lease term.

(b) Calculate the present value of the lease payments. Show your calculations and basis for these.

(c) Determine the amount of the lease asset and liability initial recognised at the start of the lease. Show your calculations and basis for these.

(d) Prepare a schedule for the lease liability.

(e) Prepare the journal entries required by the lessee for the years ending: 30 June 2022 and 30 June 2023. Show any related calculations.