On 2 January 2020, DRH Limited signed a 5-year lease up to 31 December 2024 to use an electricity plant to be installed in its factory with an annual payment of $200,000. DRH paid the initial annual payment on 2 January 2020 to the lessor, Voltas Inc., which agreed to deliver and install the plant by 10 January 2020. Five remaining annual lease payments would be made at the end of each year beginning from 31 December 2020.

DRH also committed a guarantee to Voltas Inc., that the leased plant should have a value not less than $200,000 at the end of the lease.

The parent of DRH, HRD Holding Inc., arranged a further guarantee of $40,000 in respect of the leased plant. To protect its interest in the plant, Voltas Inc., in turn, obtained a guarantee from an insurance agent that the residual value was not less than $260,000.

Required :

a) CALCULATE the finance charges and depreciation expenses for the finance lease of DRH and PREPARE the journal entries for the years ended 31 December 2020 and 2021.