Question: Question 3(7 marks) ABC Ltd has entered into an agreement to lease an item of equipment that produces teddy bears. The terms of the lease

Question 3(7 marks)

ABC Ltd has entered into an agreement to lease an item of equipment that produces teddy bears. The terms of the lease are as follows:

Date of entering lease: 1 July 2023.

Duration of lease: 10 years.

Life of leased asset: 10 years.

There is no residual value.

Lease payments: $5000 at lease inception, $5500 on 30 June each year (that is, 10 payments).

Included within the lease payments are executory costs of $500.

Fair value of the machine at lease inception: $27 470.

Required:

Determine the interest rate implicit in the lease.

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