QUESTION 3: LEASES Scott Ltd leased a machine from Hank Ltd on 1 July 2021. Information in relation to the lease contract is as follows: The lease is for 4 years. It can be cancelled at any time as long as Scott Ltd takes out another lease for an item of equivalent value. The lease payment is $80,000. An initial payment is to be made on 1 July 2021. A further 3 annual lease payments are to be made each on 30 June for each year of the lease (the first of these is to be paid on 30 June 2022). The interest rate implicit in the lease is 9%. The residual value at the end of the lease term is $185,000. The lessee has guaranteed $120,000 of this residual value. Scott Ltd incurred costs of $3,000 in negotiating the lease. Hank Ltd incurred costs of $2,800 in negotiating the lease. The fair value of the machine at the 1 July 2021 is $488,000. The machine has an estimated economic life of 6 years, with a scrap value of $25,515. Scott Ltd applies straight-line depreciation to any machines. There is an option in the lease agreement that allows Scott Ltd to purchase the machine at the end of the lease term for the guaranteed residual value. Scott Ltd is expected to purchase the machine under this option at the end of the lease (at 30 June 2025). REQUIRED (a) Calculate the amount of the right of use asset and the lease liability to be recognised at the beginning of the lease. You need to show all calculations and explain/identify the basis for these when required. Please round up to the closet amount. [3 marks] (b) Draw up a schedule of lease payments for the duration of the lease. [4 marks] (c) Prepare the general journal entries required to be prepared by Scott Ltd to account for the lease for the year ending 30 June 2022 (i.e., from 1 July 2021 to 30 June 2022). Show all the calculations and the dates for all journal entries. Narrations are NOT required.