Question
Avengers Ltd (Lessor) and Thanos Ltd (Lessee) enter into a lease agreement for a truck on 30 June 2019. On that date, the truck had
Avengers Ltd (Lessor) and Thanos Ltd (Lessee) enter into a lease agreement for a truck on 30 June 2019. On that date, the truck had a fair value of $40,988.
Details of the lease agreement are as follows:
| Lease term | 4 years |
| Annual Rental Payment in arrears starting from 30 June 2020 | $12,000 |
| Economic life of the Truck | 6 years |
| Estimated Residual value at the end of the lease term | $8,000 |
| Residual Value guaranteed by the lessee | $6,000 |
| Interest Rate implicit in the lease | 6% |
The annual rental payment includes $2,000 that is reimbursed to the lessor to do the maintenance and insurance for the truck on behalf the lessee. The lessee intends to return the truck to the lessor at the end of the lease term.
The lease payment schedule for the lessee is shown below:
| Date | Lease Payment | Interest Expense | Liability Reduction | Liability Balance |
| 30-Jun-19 |
|
|
| $39,404 |
| 30-Jun-20 | $10,000 | $2,364 | $7,636 | $31,768 |
| 30-Jun-21 | $10,000 | $1,906 | $8,094 | $23,674 |
| 30-Jun-22 | $10,000 | $1,420 | $8,580 | $15,094 |
| 30-Jun-23 | $16,000 | $906 | $15,094 | $0 |
Required:
Based on the above lease payments schedule, prepare journal entries in the books of the lessee from the start of the lease until the year ended 30 June 2022. (10 Marks).
Narrations are NOT required.
| DATE | DESCRIPTION | DR | CR |
|---|---|---|---|
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Financial Accounting Tools For Business Decision Making
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso
2nd Edition
0471347744, 978-0471347743
