On December 31, 2019, Peterson Corp. (Peterson) leased an asset. The lease term for the asset was eight years, with the first annual lease payment of $135,000 due on December 31, 2019. The residual value of the asset is expected to be $200,000 and is guaranteed by Peterson. Petersons management believes that they will return the asset at a fair value of $80,000. The interest rate implicit in the lease is 6% and is known to Peterson. Lease payments are due every December 31.

Peterson reports under IFRS.

Required:

1. Prepare the journal entries on Petersons books for this transaction at December 31, 2019, and for the year ended December 31, 2020. (4 marks)
2. Assume that on December 31, 2027, the asset is returned to the lessor. The asset is evaluated by an independent valuator, and its fair market value is assessed at

$110,000. Prepare the journal entry on Petersons books at December 31, 2027.