Section B (82 marks) Answer ALL Questions All your answers must be HANDWRITTEN on the answer booklet provided. Question 1 (30 marks) Leasing AG agrees to lease equipment to Fat Choi Furniture on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 8 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $1,312,500, and the fair value of the asset on January 1, 2020, is $1,750,000 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $125,000. Fat Choi Furniture estimates that the expected residual value at the end of the lease term will be $100,000. Fat Choi Furniture amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 5. The collectibility of the lease payments is probable. 6. Fat Choi Furniture's incremental borrowing rate is 6%. Leasing AG desires a 5% rate of return on its investments, and Fat Choi Furniture is aware of it. Both companies consider the lease as finance lease. Required (Assume the accounting period ends on December 31.) a) Calculate the amount of the annual rental payment required. (3 marks) b) Compute the value of the lease liability to Fat Choi Furniture. (3 marks) c) Prepare an 8-year lease amortization schedule for the lessee, Fat Choi Furniture. (5 marks) d) Prepare the journal entries Fat Choi Furniture would make in 2020 and 2021 related to the lease arrangement (11 marks) e) Prepare the journal entries Leasing AG would make in 2020 related to the lease arrangement. (8 marks)