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On 1 July 2020, Sabah Ltd leased an item of machinery to Johor Ltd. The machinery has a fair value of $458,010 at the inception
On 1 July 2020, Sabah Ltd leased an item of machinery to Johor Ltd. The machinery has a fair value of $458,010 at the inception of the lease and it is expected to have an economic life of 5 years. The lease agreement details are as follows. Lease Term Commencement date Annual lease payment, in arrears (commencing 30 June 2021) Residual value at end of lease term Guaranteed residual value by lessee Interest rate implicit in the lease Lease is not cancellable 3 years 1 July 2020 $165 000 $90 000 $60 000 8% All insurance and maintenance costs are paid by Sabah Ltd and are expected to amount to $15,000 per year. These costs will be reimbursed by Johor Ltd by being included in the annual lease payment of $165,000. It is expected that Johor Ltd will return the machinery to Sabah Ltd at the end of the lease. Sabah Ltd and Johor Ltd have a reporting period ending 30 June. Required: a) Prepare a lease payments schedule and the journal entries in the records of Johor Ltd for the year ended 30 June 2021. Show all workings. (8 marks) b) Prepare a lease receipts schedule and the journal entries in the records of Sabah Ltd for the year ended 30 June 2021. Show all workings. (8 marks) Period 1 2 3 4 Present Value of Si-discount factor 7% 8% 0.9346 0.9259 0.8734 0.8573 0.8163 0.7938 0.7629 0.7350 9% 0.9174 0.8417 0.7722 0.7084 Present value of an annuity of $1 per period for n periods Period 7% 8% 9% 1 0.9346 0.9259 0.9174 2 1.8080 1.7833 1.7591 3 2.6243 2.5771 2.5313 3.3872 3.3121 3.2397
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