On 1 July 2018 XYZ Ltd leased a large item of machinery for 4 years with an
Question:
On 1 July 2018 XYZ Ltd leased a large item of machinery for 4 years with an up-front payment of $100,000 and payments of $250,000 being made at the end of each of the next four years. The rate of interest implicit in the lease is quoted as being 4%. There is no intention to seek an extension of the lease. Included within annual lease payments is an amount of $30,000 which the lessor is charging as part of a service contract to maintain the machinery. The economic life of the asset is assumed to be 8 years. The lessee has agreed to commit to a guaranteed residual value as part of the lease contract amounting to $120,000.
a) Prepare the lease schedule to determine the interest expense and the reduction of principal in each year.
b) Prepare accounting journal entries for 1 July 2018 & 30 June 2021.
Advanced Accounting
ISBN: 978-0077431808
10th edition
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik