Stella ltd manufactures specialized equipment for both sale and lease. On 1 July 2022Stella Ltd leased one of these equipment to Fred Dan incurring $1200 in costs. Freddy incurred $650 in costs. Equipment be leased cost Stella $55072 to manufacture. The equipment economic life 6years, after a residual $ 950. Length of lease 5 year,

Commencement date 1 July 2022

Annual lease payment, payable 30 June each year commencing $15000, 30 June 2023

Residual value at the end of the lease term, fully guaranteed by Freddy Ltd $8000, Interest rate implicit in the lease 8%.

All insurance and maintenance costs are paid [ and incurred] by Stella Ltd and $ 2000 per year and will be reimbursed by Freddy Ltd by being included in the annual lease payment of $15,000. The equipment will be depreciated on a straight-line basis. It is expected that Freddy Ltd will purchase the equipment from Stella at the end of the lease.

[The bargain purchase price is equal to the guaranteed residual value of $8000, instead of returning the equipment to Stella, Freddy will likely pay $8000 to keep it].

Required

1. Prepare the journal entries to account for the lease in the books of Freddy Ltd for 1 July 2022 and the year ended 30 June 2023 [provides the computation details of the present value of future annual lease payments and depreciation expense.
2. Prepare the journal entries to account for the lease in the books of Stella Ltd for 1 July 2022 and the year ended 30 June 2023.