Mitch Ltd leases a machine from Stark Ltd on 1 July 2020. The machine has an economic life of 6 years and has a residual value of $7,500 at the end of the lease term. The lease agreement requires four annual payments of $20 000, each payable in advance on 1 July each year. There is no residual value guaranteed by the lessee. The interest rate implicit in the lease is 8% and the machine will be returned to Stark Ltd at the end of the lease term.

Required (10 marks)

(i) Prepare the lease payments schedule for Mitch Ltd (show all workings and round all figures to the nearest dollar). You can use the template that is provided in the Resources section. There are also Present Value Tables that are provided in the Resources section.

(ii) Prepare the journal entries in the books of Mitch Ltd for the year ended 30 June 2023.