Large Mart has previously attempted to develop a study pillow which would have allowed students to upload study material into their brain whilst sleeping. However, Large Mart has recently discovered that an American company called Bpple already holds a patent for this type of device. As a result, Large Mart has given up on its development attempts and decided to sell the Bpple product, which is called iSLEEP. In order to sell the iSLEEP, Large Mart has rented a second store in Armidale. The renting contract is for a period of 6 month, with the possibility to extend the contract by a further 3 month. Large Mart signs the renting contract on the 1 May 201x. The rent for the store will be $10,000 per month, and rent payments will be made by bank transfer at the end of each month. As soon as the renting contract for the new store is signed, Large Mart employs two UNE students (Chuck and Morgan) to get students interested in the iSLEEP by using it in the UNE library to study for their exams. Chuck and Morgan will later work for the store as shop assistants and they are payed $30 for each hour of work (this includes their work in the store and the time they spend using the iSLEEP in the library to study for their exams). In May 201x Chuck spends 60 hours studying for his exams and Morgan spends 100 hours studying for his exams. However, Chuck and Morgan will not be paid for their work until the end of June. The interior of the new store is designed in China and manufactured in the United States of America. An important part of the store design is a big bed on which customers can lie to test the iSLEEP. The bed is delivered on the 1 June 201x. On that day, Large Mart also receives an invoice of $30,000 from the Chinese designers of the bed as well as an invoice of $5,000 from the American manufacturer. The truck driver who delivered the bed also left an invoice of $1,000 (which consists of $500 for transportation services and $500 for assembly of the bed). Large Mart pays all three invoices on the 10 June 201x through a bank transfer. As part of this payment Large Mart claims an early payment discount of $500 from the invoice of the manufacturer of the bed. After the new store is completed, Large Mart orders 250 iSLEEPs from Bpple for a price of $700 per item, and these iSLEEPs arrive on 1 June 201x, and are paid via bank transfer on the same day. After this initial purchase, the following purchase and sales transactions take place within the new store: On 2 June 201x UNE purchases 100 iSLEEPs for the library for a price of $3,000 per iSLEEP on credit. Two days later UNE notices that the Library does not have sufficient space for all 100 iSLEEPs and asks Large Mart to return 50 unused iSLEEPs. Large Mart allows UNE to return the 50 excess iSLEEPs and returns them to the Inventory of the store. UNE then pays the remaining iSLEEPs on the 6 June 201x, after deducting an early payment discount of 10% from the invoice. On 15 June 201x Large Mart receives a new shipment of 500 iSLEEPs for a price of $600 per iSLEEP. The invoice for the received iSLEEPs is paid (via bank transfer) 3 days after the iSLEEPs are received. On 18 June 201x, Large Mart starts an end of financial year sale. On the 19 June 201x Large Mart sells 100 iSLEEPs to the University of Western Sydney (UWS). UWS purchases the iSLEEPs on credit for a price of $2,500 per item (before any discounts). Because UWS is a very good customer of Large Mart, UWS receives a volume discount of $100 per iSLEEP at the time UWS pays for the purchased iSLEEPs. Payment is made via bank transfer 10 days after the purchase. At the end of June 201x (which is also the end of the financial year), Large Mart finds out that Bpple will start to sell a new version of the iSLEEP (called the iSLEEP2) early in July 201x.As a result, Large Mart believes that all iSLEEPs that are currently in store can only be sold if the sales price is immediately reduced to $500 per iSLEEP.

On 1 July 201x, Large Mart leases a company car for the service department of the Bpple store (called the Nerd Herd). The duration of the lease is 8 years, and the car has an expected useful life of 9 years. The lease contract requires Large Mart to pay $5,000 at the time the lease is signed. This payment is made via a bank transfer. A further $8,000 must be paid (also via bank transfer) on the 30 June of each year, starting on the 30 June 201x+1. The lease contract states that Large Mart can cancel the lease at any time during the lease period, but that Large Mart must pay a fine equal to 85% of the remaining lease liability if the lease contract is cancelled. The interest rate implicit in the lease is 10%. Large Mart decided to enter into the lease agreement instead of purchasing the car because the purchase price would have been $47,800, and Large Mart did not have sufficient cash resources to make such a purchase at that time. The car is depreciated using the same depreciation method that is used for all other Large Mart motor vehicles (see Large Mart Depreciation Schedule in Topic 2). Large Mart expects that the residual value of the car at the end of the useful life will be $500. The lease contract also includes a clause that allows Large Mart to purchase the car at the end of the lease term for a price of $400. At that time the fair value of the car is expected to be $1,000.

IMPORTANT NOTE: Large Mart has decided to use the exemption rules outlined in AASB 16, paragraphs 5-8 for leased items to which these exemptions apply.

Question: Provide all journal entries that are necessary in the books of Large Mart to record the inception of the lease for the car, the lease payments made at the end of the first year of the lease term (30 June 201x+1), and the depreciation of the leased car for the month ended 31 July 201x (if any depreciation is required) (3 marks). YOU MUST PROVIDE DETAILS OF ALL NECESSARY CALCULATIONS!