LEASE CLASSIFICATION AND DETERMINATION OF INTEREST RATES *This exercise contains three multiple-choice questions. Select the correct answer and show any workings required 1. Pukekohe Ltd sells land that originally cost $150 000 to Taupo Ltd for $230 000 when the land's fair value is $215 000, and then enters into a cancellable lease agreement to use the land for 2 years at an annual rental of $2000. In the current year, how much profit would Pukekohe Ltd record on the sale of the land? a. $15 000 b. $80 000 c. $65 000 d. Nil 2. Using the information from part 1 above, how would Taupo Ltd record the annual cash received from Pukekohe Ltd? a. As rental revenue b. As a reduction of the lease receivable c. As rental expense d. As interest revenue and a reduction of the lease receivable 3. On 1 July 2016, Masterton Ltd leases a machine with a fair value of $109 445 to Tokoroa Ltd for 5 years at an annual rental (in advance) of $25 000, and Tokoroa Ltd guarantees in full the estimated residual value of $15 000 on return of the asset. What would be the interest rate implicit in the lease? a. 10% b. 12% c. 9% d. 14%