Question
Loftus Exercise 10.8 On 1 July 2020, Sherlock Ltd leased a processing plant to Holmes Ltd. The plant was purchased by Sherlock Ltd on 1
Loftus Exercise 10.8
On 1 July 2020, Sherlock Ltd leased a processing plant to Holmes Ltd. The plant was purchased by Sherlock Ltd on 1 July 2020 for its fair value of $569,877. The lease agreement contained the following provisions.
| Lease term | 3 years | |
| Economic life of plant | 5 years | |
| Annual rental payment, in arrears (commencing 30/6/2021) | $183,000 | |
| Residual value at end of the lease term | $110,000 | |
| Residual guaranteed by lessee | $73,000 | |
| Interest rate implicit in lease | 7% | |
| The lease is cancellable only with the permission of the lessor. | ||
Holmes Ltd intends to return the processing plant to the lessor at the end of the lease term. The lease has been classified as a finance lease by both the lessee and the lessor.
Prepare the journal entries in the records of the lessee for the year ended 30 June 2022. (Enter debit entries first followed by credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round factor values to 4 decimal places, e.g. 5,2752 and final answers to 0 decimal places, e.g. 5,275.)
Prepare the journal entries in the records of the lessee for the year ended 30 June 2022. (Enter debit entries first followed by credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round factor values to 4 decimal places, e.g. 5,2752 and final answers to 0 decimal places, e.g. 5,275.)
| Holmes Ltd (lessee) Journal entries for the year ended 30 June 2022 | ||
| Account and explanation | Debit | Credit |
| Lease liability Cash Interest revenue Interest expense Depreciation expense Accumulated depreciation Lease receivable | ||
| Interest expense Accumulated depreciation Lease receivable Interest revenue Lease liability Cash Depreciation expense | ||
| Cash Lease receivable Interest revenue Lease liability Interest expense Depreciation expense Accumulated depreciation | ||
| (Second lease payment) | ||
| Depreciation expense Lease receivable Interest expense Interest revenue Lease liability Cash Accumulated depreciation | ||
| Interest expense Interest revenue Lease receivable Lease liability Cash Depreciation expense Accumulated depreciation | ||
| (Depreciation for the year) | ||
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Intermediate Accounting
Authors: Earl K. Stice, James D. Stice
19th edition
1133957919, 978-1285632988, 1285632982, 978-0357691229, 978-1133957911
