Supply Ltd entered into a non-cancellable five-year lease arrangement with Customer Ltd on 1 July 2019. The leased asset is a machine with an estimated useful life of six years and a salvage value of zero. There are to be five annual lease payments of $80,000, the first being made on 30 June 2020. Customer Ltd determined that this contract contains a lease. Customer Ltd will be able and likely to exercise an option to purchase the leased asset at the end of the lease term for $30,000. This price is expected to be well below the fair value of the machine when the option becomes exercisable. The implicit interest rate is 12%.

Do not include commas and dollar sign ($) in your answer. Present $1,000 as 1000. Round all your answers to the nearest whole dollar amount.

• What is the balance of Lease Liability at the inception date of the lease?
• Assuming Customer Ltd used straight-line method, what is the depreciation expense that the company should record for the financial year ended on 30 June 2020?