QUESTION 1 1 points Save Answer On 1 July 2020 Lessor Ltd purchased a large item of machinery for its fair value of $1 325 973. On that day, Lessee Ltd leased the machinery from Lessor Ltd on the following term: Date of entering lease 1 July 2020 Duration of lease 4 yrs Life of leased asset 8 yrs Estimated residual value at the end of lease term $500 000 Residual value Guaranteed $120 000 Residual value Unguaranteed $380 000 Lease payments Up-front payment of $100 000 Then, annual payments of $260 000 being made at the end of each year (that is, 4 yearly payments in arrears.) Fair value of leased asset at date of lease $1 325 978 inception Included within annual lease payments is an amount of $40 000, which the lessor is charging as part of a service contract to maintain the machinery. The lease is classified as a finance lease by the lessor and the rate of interest implicit in the lease is 4 percent. PV of lease paymts = 100 000 + (260 000 - 40 000) x 3.6299 + 120 000 x 0.8548 =$1001154 PV of the unguaranteed residual = $380 000 x 0.8548 = $324 824 Thus, net investment = $1 325 978 or, FV of leased asset Journal entries at 1 July, 2020 Dr Machinery $1 325 978 Cr Cash $1 325 978 Dr Lease receivable $1 325 978 Cr Machinery $1 325 978 Dr Cash $100 000 Cr Lease receivable $100 000 Dannirad. Pronara tha inurnal antrios on 301 Tuna 7021 hwa wonre later for Taccar Itd