1. Barry Limited (lessee) entered into a finance lease agreement with the following terms:

lease term is 4 years

estimated economic life of the leased asset (equipment) is 5 years

Right of use asset amount at the inception was $85,695

Annual lease payments of $30,000 each payable in advance.

residual value at the end of the lease term is $5,000 but no amount was guaranteed by the lessee

Which one of the following is correct for Barry Limited?

Select one:

Depreciation entry;

Dr Depreciation $16,139

Cr Accumulated depreciation $16,139

To record the asset at the inception;

Dr Right of use asset $85,695

Cr Cash $30,000

Cr Lease liability $55,695

Depreciation entry;

Dr Depreciation $20,174

Cr Accumulated depreciation $20,174

To record the asset at the inception;

Dr Right of use asset $85,695

Cr Cash $30,000

Cr Equipment $55,695

Q2.

During the financial year, Cottontree Limited had a cost of sales amounting to $130000. Opening and ending balances of related accounts were:

Opening balanceClosing balance

Inventories $34 000$42 000

Accounts Payable$51 000$56 000

A discount of $4 000 for prompt payment was received.

What would be the amount of cash paid for goods purchased during the year?

Select one:

$143 000

$135 000

$129 000

$130 000

None of these

Clear my choice

Q3

The following information relates to Jefferson Limited for the year ended 30 June 2019.

Accounting profit before income tax $320 000

Interest revenue (all accrued, no receipts during the year)7 000

Speeding fine (not tax deductible) 10 000

Depreciation of machinery (Note 1) 30 000

Superannuation expense (not deductible until paid: Note2) 6 000

Insurance expense (Note 3)8 000

Income tax rate 30%

Notes:

1) Deprecation of machinery is $45,000 for tax purposes.

2) Total $5,500 has been paid during the year and $500 was payable on 30 June 2019.

3) Total $10,000 has been paid on 1 December 2018, $2,000 has been accounted as a prepaid expense asset on 30 June 2019.

4) Income received in advance on 30 June 2019 accounted for $4,000

Required: Calculate the taxable income and the current tax liability for the year ended 30 June 2019 for Jefferson Limited by reconciling accounting profit to tax profit. Also provide a journal entry for the current tax liability.