QUESTION 4 ALtd (Lessor) and Railway Ltd (Lessee) agree onthe following terms for the leasing of a tunnel boring machine. Commencement date Lease term Lease classification Economic life of the machine 1 April 2019 7 years Finance lease 10 years Upfront payment due on the commencement date $5 690 400 Fixed payments per annum received at year end UGRV The interest rate implicit in the lease $1 500 000 $2 500 000 8% IDC incurred by the lessor SO $10 000 IDC incurred by the lessee The relevant present value discount factors are: Question 4 continued: Present value of $1 in n periods n = 7 Present value of an annuity i=8% Lessor's interest income SCF classification 0.5835 5.2064 CFOA CFFA | Lessee's interest expense SCF classification PART B for Railway Ltd (Lessee) Required: (1) Prepare the journal entry to initially recognise the ROU asset and lease liability, at the commencement date. (i) Complete the lessee's table in the space provided. Note: You must round to the nearest whole dollar in your calculations for interest and lease liability reduction each year. Follow the examples completed in the lectures and tutorials. (ii) Determine the total interest expense that Railway Ltd will recognise over the lease term. (iv) Prepare the additional journal entry required at the end of the lease. (v) Prepare financial statements for Railway Ltd to reflect the effects of the lease for the financial periods ending 31 March 2020, 2023, and 2026. (vi) There are two recognition exemptions for a lessee. One being the short-term lease exemption and the other is the low value underlying asset exemption. Prepare financial statements for Railway Ltd to reflect the effects of the lease for the financial periods ending 31 March 2020, 2023, and 2026 assuming Railway Ltd incorrectly used the simplified accounting approach. Classify the lease expense payments as CFOA.