Roger and David Ltd enters into a five-year lease agreement with Brothers Ltd on I July 2019
for an item of machinery.
There is a bargain purchase option that Roger and David Id will be willing to exercise at the
end of the fith year for $100 000. The machinery is expected to have a useful life of six years.
There are to be five annual payments of $105 000, the first being made on 30 June 2020.
Inchided within these payments is $15 000 representing payment to the lessor for insurance
and maintenance of the equipment. The implicit interest rate is 12 percent.

a.Prepare the journal entries for the years ending 30 June 2020 and 30 June 2021.
b.Prepare a lease payment schedule.