Question
On 1 July 2020, Hundred Ltd leased a network server from Fifty Ltd. The server had cost Fifty Ltd $32 000 on the same day.
On 1 July 2020, Hundred Ltd leased a network server from Fifty Ltd. The server had cost Fifty Ltd $32 000 on the same day. The lease agreement cost Fifty Ltd $1390 to set up and included the following:
Lease term 5 years
Estimated economic life of the network server 10 years
The lease is cancellable
Annual rental payment (in arrears) $6500
Residual value at end of lease term $24 000
Residual guarantee by One Ltd $0
Interest rate implicit in the lease 8%
The journal entry recorded by the lessor for the annual recognition of the initial direct costs would be:
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