Deliveries Ltd leased a truck from a truck dealer, City Vans Ltd. City Vans Ltd acquired the truck at a cost of $180 000. The truck will be painted with Deliveries Ltds logo and advertising, and the cost of repainting the truck to make it suitable for another owner four years later is estimated to be $40 000. Deliveries Ltd plans to keep the truck after the lease but has not made any commitment to the lessor to purchase it. The terms of the lease are as follows:

Date of entering lease: 1 July 2023.

Duration of lease: four years.

Life of leased asset: five years, after which it will have no residual value.

Lease payments: $100 000 at the end of each year.

Interest rate implicit in the lease: 10 per cent.

Unguaranteed residual: $50 000.

Fair value of truck at inception of the lease: $351 140.

REQUIRED

Demonstrate that the interest rate implicit in the lease is 10 per cent.

Prepare the journal entries to account for the lease transaction in the books of the lessor, City Vans Ltd, at 1 July 2023 and 30 June 2024.

Prepare the journal entries to account for the lease transaction in the books of the lessee, Deliveries Ltd, at 1 July 2023 and 30 June 2024. On 30 June 2027 Deliveries Ltd pays the residual of $50 000 and purchases the truck.

Prepare all journal entries in the books of Deliveries Ltd for 30 June 2027 in relation to termination of the lease and the purchase of the truck