Oceans Ltd manufactures specialised moulding machinery for both sale and lease. On 1 July 2020, Oceans Ltd leased a machine to Eleven Ltd. The machine being leased cost Oceans Ltd $195 000 to make and its fair value at 1 July 2020 is considered to be $212 515. The terms of the lease are as follows.

The lease term is for 5 years, starting on

Annual leas payment, payable on 30 June each year

Estimated useful life of machine (scrap value $ 2500)

Estimated residual value of machine at end of lease term

Residual value guarantee by Eleven Ltd Interest rate implicit in the lease

The annual lease payment includes an amount of $ 7500 to cover annual maintenance and insurance costs.

Eleven Ltd may cancel the lease but only with the permission of the lessor

Eleven Ltd intends to lease another machine from Oceans at the end of the lease term. 1 July 2020 $ 57 500 $37000 $ 25 000 1096 At a
64% Sat Apr 6 8 in Austr... Annual lease payment, payable on 30 June each year

Estimated useful life of machine (scrap value $ 2500)

Estimated residual value of machine at end of lease term

Residual value guarantee by Eleven Ltd Interest rate implicit in the lease

The annual lease payment includes an amount of $ 7500 to cover annual maintenance and insurance costs.

Eleven Ltd may cancel the lease but only with the permission of the lessor.

Eleven Ltd intends to lease another machine from Oceans at the end of the lease term. $ 57 $37 $25

Required

1. Classify the lease for Oceans Ltd. Justify your answer.

2. Prepare (a) the lease receipts schedule for Oceans Ltd (shovw all workings) and (b) the journal entries in its books for the year ended 30 June 2021.

3. Assuming that Eleven Ltd can cancel the lease without incurring any penalties, prepare the journal entries in the books of

Oceans Ltd for the year ended 30 June 2021.