Question: Lightfooted purchases a machine for client Multiproductions and undertakes the installation and modifications at the premises of Multiproductions. The machine cost 63,000 and shipping and

Lightfooted purchases a machine for client Multiproductions and undertakes the installation and modifications at the premises of Multiproductions. The machine cost 63,000 and shipping and installation cost another 3,384 for a total cost of 66,384. The machine is expected to be scrapped at the end of the five-year lease and hence the residual value is expected to be zero. Lightfooted sets the interest rate at 6% per annum and receives payments at the end of the year for five years. Required:

(a) Show all entries for the first two years in the books of Lightfooted. (Hint: first calculate the annual lease payment.)

(b) Multiproductions does not know the implicit interest rate in the lease but believes alternative sources of finance would cost 6.2% per annum. Show all the entries related to the lease in the books of Multiproductions in the first two years.

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