Question 4 Total: 10 marks On 1 July 2017 Hillary Ltd leased a machine from Bill Ltd. The machine cost Bill Ltd $129,000, considered to be its fair value on 1 July 2017. In setting up the lease agreement Hillary Ltd incurred costs of $619 and Bill Ltd incurred costs of $1,279. The terms of the lease agreement were as follows: 3 years 4 years $40,000 Lease term Economic life of machine Annual rental payments, in advance (15 payment on 1 July 2017) Residual value of machine at the end of lease term Residual value guaranteed by Hillary Ltd Interest rate implicit in the lease PV of $1 in 3 years at 7% PV of $1 annuity with 2 payments PV of $1 annuity with 3 payments $22,000 $16,000 7% 0.8163 1.8080 2.6243 The lease is cancellable only with the permission of the lessor. Hillary Ltd will return the machine to Bill Ltd at the end of the lease term. Hillary Ltd has a reporting period ending 30 June Required: Prepare the necessary journal entries for Hillary Ltd to record the transactions and events associated with the lease on the following dates: 1 July 2017 and 30 June 2018 (10 marks) Question 6 Leases Total: 10 marks On 1 July 2016 Wiley Ltd leased a piece of equipment from Pearson Ltd. The equipment had a fair value of $145 000 on 1 July 2016. The lease agreement contained the following provisions: 3 years $50 000 4 years $15 000 Lease term (non-cancellable) Annual rental payments (19 payment due 01/07/16; ie, in advance) Estimated useful life of equipment Estimated residual value of equipment at the end of lease term Guaranteed residual value Interest rate implicit in the lease Present value of $1 in 3 years at 10% Present value of an annuity of $1 for 2 payments at 10% Present value of an annuity of $1 for 3 payments at 10% $10 000 10% 0.7513 1.7355 2.4869 Wiley Ltd depreciates equipment on a straight line basis. The reporting period ends 30 June. Required: a) Prepare a lease schedule for Wiley Ltd. (4 marks) b) Prepare journal entries to record the lease transactions and events for Wiley Ltd on 1 July 2017 and 30 June 2018 ONLY. (6 marks)