Information NB: You must use the present value factors provided in the following lease question. P Flag question Question 13 REF No. 38 Not yet answered Marked out of 30.00 P Flag question Crown Ltd manufactures specialised machinery for both sale and lease. On 1 July 20X1, Crown Ltd leased a crane to Lloyds Ltd. The crane cost Crown Ltd $57568 to manufacture and its fair value on 1 July 20X1 was $71960. The lease term is for 5 years, starting on 20X1. The terms of the lease are as follows: Legal expense for Crown Ltd to prepare the lease contract $2400 Estimated useful life of the machine (zero scrap value) 8 years The annual lease payment includes the amount to cover annual maintenance and insurance $20000 costs, with the first payment on 30 June 20X2 The amount to cover annual maintenance and insurance costs $2000 Estimated residual value of crane at end of lease term $6000 Residual value guaranteed by Lloyds Ltd $3600 Interest rate implicit in the lease 10% Crown Ltd classifies the lease as a finance lease. Assume depreciation method is straight-line for all calculations. SOLUTIONS: a. The journal entries in the records of Crown Ltd (lessor) to account for the lease for the year ended June 20x2 and 30 June 20X6 1 July 20X1 Dr Cost of goods sold Dr Inventory Cr . > Dr Cr Cash 30 June 20x2 Dr Cash > Cr Lease receivable Appendix A. Present value of $1 in n periods at i% Appendix B. Present value of an annuity of $1 per interest rates period at i% for n period at i% interest rates period 6% 7% 8% 9% 10% period 6% 7% 9% 10% 8% 1 0.9434 0.9346 0.9259 0.9174 0.9091 1 0.9434 0.9346 0.9259 0.9174 0.9091 2 0.8900 0.8734 0.8573 0.8417 0.8265 2 1.8334 1.8080 1.7833 1.7591 1.7355 3 0.8396 0.8163 0.7938 0.7722 0.7513 3 2.6730 2.6243 2.5771 2.5313 2.4869 4 0.7921 0.7629 0.7350 0.7084 0.6830 4 3.4651 3.3872 3.3121 3.2397 3.1699 5 0.7473 0.7130 0.6806 0.6499 0.6209 5 4.2124 4.1002 3.9927 3.8897 3.7908 6 0.7050 0.6663 0.6302 0.5963 0.5645 6 4.9173 4.7665 4.6229 4.4859 4.3553 7 0.6651 0.6228 0.5835 0.5470 0.5132 7 5.5824 5.3893 5.2064 5.0330 4.8684 8 0.6274 0.5820 0.5403 0.5019 0.4665 8 6.2098 5.9713 5.7466 5.5348 5.3349 REQUIRED: a. Prepare the journal entries in the records of Crown Ltd (lessor) to account for the lease for the year ended 30 June 20X2 and 30 June 20X6 b. Prepare the journal entries in the records of the Lloyds Ltd (lessee) to account for the lease for years ended 30 June 20X2 and 30 June 20x6. NB: Round all your answers to the nearest dollar amount. If you believe no journal entry is required, select NULL for the account name, NA for the Dr or Cr, and enter 0 for the amount. Do not leave the amount blank. Do not enter dollar ($) signs or commas (i.e. enter 10000 not $10,000). When needed, make sure you use the present value factors and present value of annuity factors from the appendixes provided above ONLY. b. The journal entries in the records of the Lloyds Ltd (lessee) to account for the lease for years ended 30 June 20x2 and 30 June 20X6 1 July 20X1 Dr Cr Lease liability 30 June 20X2 Dr Lease liability Cr Cash Dr Cr Cash Dr Cash Cr > 30 June 20X6 Dr Cash Cr Lease receivable Dr Cash Cr Dr Cr Lease receivable Dr Cr 30 June 20x6 Dr Lease liability Cr Cash Dr Cr Cash Dr Cr Dr Lease liability C Accumulated Depreciation