Question
On 30 June 2020 Jerry Limited leased a machine (non-current asset) from Elaine Limited. The following represents the key terms of the lease agreement. Lease
On 30 June 2020 Jerry Limited leased a machine (non-current asset) from Elaine Limited. The following represents the key terms of the lease agreement.
Lease term
3 years
Annual lease payment (payable in advance on 30 June each year)
$71,300
Estimated useful life of the machine
4 years
Estimated residual value at the end of the lease term
$40,000
Residual value guaranteed by lessee
$28,000
Interest rate implicit in the lease
9%
The annual lease payments include executory costs of $1,300. Elaine Limited pays the executory costs on behalf of Jerry Limited every year. Jerry Limited intends to return the asset to the lessor at end of the lease term. The costs incurred by Elaine Limited for the preparation of the lease were $3,000. The lease is classified as a finance lease in accordance with AASB 16 'Leases'.
Required
(a)Prepare the lease payments schedule for the lessee (show all workings).(4 marks)
(b)Prepare the journal entries in the books of the lessee from 30 June 2020 to 30 June 2021.(7.5 marks)
(c)Prepare the lease receipt schedule for the lessor (show all workings).(3.5 marks)
(d)Prepare the journal entries in the books of the lessor from 30 June 2020 to 30 June 2021.(8 marks)
Note:round up to two (2) decimal places
The relevant discount rates are:
Date
30/06/2020
1
30/06/2021
0.9174
30/06/2022
0.8417
30/06/2023
0.7722
30/06/2024
0.7084
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