Question
On 1 July 2022, Moose Ltd leased a plastic-moulding machine from Wolf Ltd. On 1 July 2022 the machine was in the records of Wolf
On 1 July 2022, Moose Ltd leased a plastic-moulding machine from Wolf Ltd. On 1 July 2022 the machine was in the records of Wolf Ltd at its fair value of $75 000.
The lease agreement contained the following provisions.
Lease term | 4 years |
Annual rental payment, in advance on 1 July each year | $20 750 |
Residual value at end of the lease term | $7 000 |
Residual guaranteed by lessee | $4 000 |
Interest rate implicit in lease | 8% |
The machine will be depreciated by Moose Ltd on a straight-line basis. The expected useful life of the machine is 5 years. Moose Ltd intends to return the machine to the Wolf Ltd at the end of the lease term. The lease has been classified as a finance lease by Wolf Ltd.
Included in the annual rental payment is an amount of $750 to cover the costs of maintenance and insurance paid for by the lessor. Initial direct costs for setting up the lease were incurred by both parties: $1 518 for Moose Ltd and $1 687 for Wolf Ltd.
Required:
- Prepare the lease receipts schedule for the Wolf Ltd.
- Prepare the journal entries in the books of Wolf Ltd for 1 July 2022 and for 30 June 2023.
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