Case Study Sortex Ltd is a manufacturer of July 2023, Red Fox Lidentered into a tree year lease agreementwit sofi 8 machinery hat cost $140,000 to manufacture. This machinery is expected to have a useful life of four years, after which it will have a salvage value of $28,000. Red Fox Ltd made an initial payment of $75,000 upon signing the lease agreement with three annual lease payments of $38,000 to follow, with the first being made on 30 June 2024. Included in these three annual lease payments is an amount of $3,000 representing a payment to the lessor for the insurance and maintenance of the equipment for the past year. The residual value at the end of the lease term is $40,000 and the lessee has guaranteed $20,000. Red Fox Ltd intends to return the machinery to Sortex Ltd at the end of the lease term.
Required:
A. Prepare the lease receipts schedule for Sortex Ltd using the interest rate implicit in the lease of 13 % You will be advised of the interest rate to use during the workshop). Show all workings and round off to the nearest dollar.
B. Prepare the journal entries for Sortex Ltd for the full year from 1 July 2023 to 30 June 2024. Show all workings and round off to the nearest dollar. Narrations are required.