1. Nelson Inc. (NI) enters into a six-year lease for equipment on October 1, 2021, that requires annual payments of $30,000, starting on October 1, 2021 for each of the next six years. NI guarantees the lessor a residual value of $16,000 at the end of the lease. The useful life of the equipment is seven years. NI follows ASPE.

Required (9 marks):

1. Assuming an interest rate of 10% prepare NIs journal entry on October 1, 2021.
2. Prepare the same journal entry as above assuming that the residual value is still expected to be $16,000 but is not guaranteed.