Mitch Ltd prepares the following lease payments schedule for the lease of a machine from Stark Ltd. The machine has an economic life of 6 years. The lease agreement commences at 1 July 2021 and requires four annual payments of \($33\) 000. The machine will be returned to Stark Ltd at the end of the lease term on 30 June 2025. Mitch Ltd did not incur any initial direct costs to set up the lease. 

Required The following three multiple-choice questions relate to the information provided above.

Select the correct answer and show any workings required.

1. For the year ended 30 June 2022, what would Mitch Ltd record in relation to the lease?

(a) An interest expense of \($0 (b)\) An interest expense of \($11\) 271

(c) An interest expense of \($5\) 511

(d) An interest expense of \($5\) 760

(e) pense would Mitch Ltd record?

Cannot determine based 

2. How much annual depreciation ex on the information provided

(a) \($27\) 182

(b) \($30\) 000

(c) \($13\) 122 

3. If on 1 July 2021 Stark Ltd records a lease receivable of \($112\)  327, the difference between this receivable and the liability of \($78\) 729 recorded by Mitch Ltd could be due to what?

(a) A residual value guarantee

(b) An unguaranteed residual value

(c) Both of the above, among others

(d) Neither of the above

Transcribed Image Text:

Date Lease MITCH LTD Lease payments schedule Interest expense Reduction in payments (7%) liability Balance of liability $ $ $ $ 1 July 2021 78 729 30 June 2022 5511 78 729 1 July 2022 30 000 24 489 54 240 30 June 2023 3 797 54 240 1 July 2023 30 000 26 203 28 037 30 June 2024 1963 28 037 1 July 2024 30 000 - 28 037 90 000 11 271 78 729