BlossomCorporation is a machinery dealer whose shares trades on the TSX, and so it uses IFRS 16.Blossomleased a machine to Ernst Ltd. on January 1, 2020.

The lease is for a six-year period and requires equal annual payments of $24,959at the beginning of each year.

The first payment is received on January 1, 2020.Blossomhad purchased the machine for its inventory during 2019 for $100,100.

Collectibility of lease payments is reasonably predictable, and no important uncertainties exist about costs that have not yet been incurred byBlossom.

Blossomset the annual rental amount to ensure an9% rate of return. The machine has an economic life of six years, with no residual value, and reverts toBlossomat the termination of the lease.

Required

Part # 1

Using a financial calculator, calculate the amount of each of the following:

1.Gross investment

2. Unearned interest Income

3. Net investment in the lease

Part # 2

Prepare all necessary journal entries forBlossomfor 2020.

At December 31, 2020,Blue SpruceInc. is involved in a lawsuit.

Part #1

Prepare the December 31 entry assuming it is probable (and very likely) thatBlue Sprucewill be liable for $560,000as a result of this suit. Assume thatBlue Sprucefollows ASPE.

Part # 2

Prepare the December 31 entry, if any, assuming it is probable (although not likely) thatBlue Sprucewill be liable for $560,000as a result of this suit. Assume thatBlue Sprucefollows ASPE.