Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Paula Ltd manufactures specialised machinery for both sale and lease. On 1 July 2019, Paula Ltd leased one of these machines to Bobby Ltd, incurring
Paula Ltd manufactures specialised machinery for both sale and lease. On 1 July 2019, Paula Ltd leased one of these machines to Bobby Ltd, incurring $1,800 in costs to prepare and execute the lease document. Bobby Ltd incurred $650 in costs to negotiate the agreement. The machine being leased cost Paula Ltd $55,072 to manufacture. The machine is expected to have an economic life of 6 years, after which time it will have a residual value of $950. The lease agreement details are as follows. * Length of lease: 5 years * Commencement date: 1 July 2019 * Annual lease payment, payable 30 June each year commencing 30 June 2020: $16,000 * Residual value at the end of the lease term, fully guaranteed by Bobby Ltd: $8,000 * Interest rate implicit in the lease: 8% All insurance and maintenance costs are paid by Paula Ltd and amount to $3,000 per year and will be reimbursed by Bobby Ltd by being included in the annual lease payment of $16,000. The machinery will be depreciated on a straight-line basis. It is expected that Bobby Ltd will purchase the machine from Paula Ltd at the end of the lease. Which of the following statements are correct? SELECT ALL CORRECT RESPONSES Select one or more: a. Paula Ltd is a manufacturer lessor. b. The $1,800 incurred in preparing and executing the lease document form part of the fair value of the right of use asset. O c. The $1,800 incurred in preparing and executing the lease document should be capitalised in lease receivable at the inception of the lease. O d. The $1,800 incurred in preparing and executing the lease document should be capitalised in lease payable at the inception of the lease. O e. The $1,800 incurred in preparing and executing the lease document should be expensed by Paula Ltd
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started