On 30 June 2017, Holmes Ltd leased a vehicle to Lake Ltd. Holmes Ltd had purchased the vehicle on that day for its fair value. Holmes Ltd has a balance date of 30 June. The lease agreement contained the following information:

• Lease term: 4 years
• Annual payment, payable in advance on 1 July each year: $23,900
• Economic life of vehicle: 6 years
• Estimated residual value at end of economic life: $2,000
• Estimated residual value at end of lease term: $15,000
• Residual value guaranteed by lessee: $7,500
• Unguaranteed residual value: $7,500
• Interest rate implicit in the lease: 7% p.a.
• The lease is cancellable, but cancellation will incur a monetary penalty equivalent to three years of rental payments.
• Included in the annual payment is an amount of $1,900, paid in advance, to cover reimbursement for the costs of insurance and maintenance paid by the lessor.
• Holmes Ltd pays for these insurance and maintenance costs on 30 June each year, in arrears.
• The directors of Lake Ltd have indicated that they will return the asset to Holmes Ltd at the end of the lease term.

(a) Calculate the net investment in the lease for the LESSOR Holmes Ltd (Show all workings). (4 marks)

(b) Prepare the Lease Receipt Schedule for the LESSOR Holmes Ltd. (7 marks)

(c) Prepare the journal entries for the LESSOR Holmes Ltd for the financial years ended 30 June 2018 and 30 June 2019. (7 marks)