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 dueon 31 December each year. The interest rate implicit in the leaseis 8%. 2. The lease can be cancelled by the customer upon paymentof a penalty of $40,000. 3. There is a purchase option that thecustomer will be able to exercise at the end of the sixth year, for$2 000. The estimated fair value of the trailer at the end of thesixth year is $10 000. 4. The fair value of the trailer is $51,260.The cost of a trailer to ACCT Corp. is $45,000. The trailer has anexpected useful 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.
