On January 1, Year 4, Delphi Corp. (the lessee) enters into a

10-year non-cancellable lease with Zeus Ltd, to lease equipment with an estimated useful life of 11 years and a fair

value of $6,000,000. The lease rate is 8%. Delphi uses the

straight-line method to depreciate assets. The lease contains

the following provisions:

1. Annual lease payments of $842,000 (this includes $42,000

for property taxes), payable on January 1 each year

2. A guarantee by Delphi Corp. that Zeus Ltd. will realize

$200,000 from selling the asset at the expiration of the lease.

Both companies adhere to IFRS 16.

Required:

a. Calculate the present value of the minimum lease

payments. Round to the nearest dollar.

b. Prepare a lease amortization schedule up to and

including January 1, Year 7. Round to the nearest dollar.

c. Prepare the journal entries that Keremeos would record

during the first year of the lease.