Question 4 (24 marks) Zeta Company as lessor enters into a lease agreement with Ukbank Company, on July 1, 2018, to give the right of use of its equipment to Ukbank. The following data are relevant to the lease agreement: The term of the noncancelable lease is 4 years. Annual payments are due on July 1 of each year, beginning on July 1, 2018. There is an unguaranteed residual value of $500,000 at the end of the least term 1. The fair value of the equipment on July 1, 2018 is $3,500,000 and cost to Zeta Company is 2,500,000. The equipment has an economic life of 5 years with no salvage value. Ukbank depreciates similar machinery it owns on the sum-of-the-years'-digits basis. The lessee pays all executory costs. Zeta used an implicit rate of 8% in computing the lease payments. The implicit rate is unknown to Ukbank and Ukbank's incremental borrowing rate is 10% per year. (Present value factor of annuity due of 1 for 4 periods at 8%, 3.57710; at 10%, 3.48685, present value of 1 in 4 year time at 8%, 0.735; at 10%, 0.683). 2. 3. 4. 5. Required (a) Compute the annual lease payment required by Zeta on July 1 each year. (b) Indicate the type of lease Zeta Company has entered into. Discuss all the tests that are met (4 marks) if this is a finance lease. (3 marks) (5 marks) Prepare an amortization schedule that is suitable for Zeta for the lease term. (d) (c) Prepare all of the journal entries for Zeta, the lessor for 2018 and 2019 to record the lease agreement, the receipt of lease payments, and the recognition of revenue. (e) (6 marks) (6 marks) Prepare the journal entries for the lessee, Ukbank Company on July 1 2018