Mozart Ltd agreed to lease some highly specialised machinery for a five-year period, commencing January 1, 2021. The machinery had a remaining useful life of only four years at that date. Annual lease payments total $7.2 million, 15% of which relates to insurance costs. The entity incurred expenses o f5756,000 to draft the lease, while it received lease incentives amounting to $338,000. The agreement speaks to a guaranteed residual value of $3,400,000. The interest rate implied in the lease is 8% while the incremental borrowing rate is 3% higher.

Required:

(a) Prepare the relevant journal entries for the last year of the lease.

(b) Prepare the statement of financial position extract for the first year of the lease.

You must show all relevant workings, including the lease amortisation schedule.

(22 marks)