Fortuna Ltd Has Leased Some Machinery to Be Used in Its

Fortuna Ltd has leased some machinery to be used in its business for an annual payment of $4000 due at the end of each year.The lease is non-cancellable and at the end of five years the machinery will have no value.The machinery could be purchased outright for $14 420.The rate of interest implicit in the lease agreement is 12%.At the end of the second year,Fortuna should make the following entry:

A) A) Dr Lease Liability $\$ 1458$
Dr Interest Expense $\quad \$ 2542$
Dr Cash at Bank $\quad \$ 4000$
B) Dr Interest Expense $\quad \$ 4000$
Dr Cash at Bank $\quad \$ 4000$
C) C) Dr Lease Liability $\quad \$ 2542$
Dr Interest Expense $\quad \$ 1458$
Dr Cash at Bank $\quad \$ 4000$
D) $\begin{array} { l l } \text { Dr Rent Expense } & \$ 4000 \\\text { Cr Cash at Bank } & \$ 4000\end{array}$