ACCT Corp. is a manufacturer of truck trailers. On 1 January2020, ACCT Corp. leased a trailer to a customer under a six-yearlease agreement. The following information about the lease and thetrailers is provided:
1. Equal annual payments of $10 816 are due on 31 December eachyear. The interest rate implicit in the lease is 8%.
2. The lease can be cancelled by the customer upon payment of apenalty of $40,000.
3. There is a purchase option that the customer will be able toexercise at the end of the sixth year, for $2 000. The estimatedfair value of the trailer at the end of the sixth year is $10000.
4. The fair value of the trailer is $51,260. The cost of atrailer to ACCT Corp. is $45,000. The trailer has an expecteduseful life of nine years.
REQUIRED:
(1) What type of lease is this for the lessor? Provideexplanation and justification for your classification consideringAASB 16.
(2) Prepare the journal entries for the lessor from 1 January2020 to 31 December 2020 (the reporting period end of ACCT Corp.)to record the lease arrangement.
