Question: Accounting for lease by lessee and lessor

On $1$ July $20$X$4$ Near Ltd signed a contract to lease a machine from Far Ltd$.$ On the day the

lease contract was signed, Far Ltd purchased the machine at fair value. Near Ltd incurred

$$2,122$ to obtain the lease. Far Ltd incurred initial costs of $$1,475.$ The lease agreement

included the following provisions.

At the end of the lease term, the machine was returned to Far Ltd$.$

Required:

Prepare a schedule of interest expense and lease payments over the lease term

for thelease liability recognised by Near Ltd

Prepare the journal entries for Near Ltd from $30$ June $204$ to $30$ June $205.$

Calculate the fair value of the machine at the commencement of the lease.On $1$ July $20$X$4$ Near Ltd signed a contract to lease a machine from Far Ltd$.$ On the day the lease contract was signed, Far Ltd purchased the machine at fair value. Near Ltd incurred

$$2,122$ to obtain the lease. Far Ltd incurred initial costs of $$1,475.$ The lease agreement included the following provisions.

Lease Term $6$ years

Annual payments from Near Ltd to Far Ltd$.$ The initial payment was made on $1$ July $20$X$4$ with subsequent payments made on $30$ June each year.

$$40,000$

Amount included in the annual payments to cover the cost of maintenance and repairs that were arranged and paid for by Far Ltd$.$

$$3,000$

Residual value of the machine at the end of the lease term $$25,000$

Amount of the residual value guaranteed by Near Ltd $$20,000$

Amount of the residual value guarantee that is expected to be payable by Near at the end of the lease term $$4,000$

Interest rate implicit in the lease $4\%$

The expected useful life of the machine with zero residual at the end of the useful life. $8$ years

At the end of the lease term, the machine was returned to Far Ltd$.$

Required:

$1.$ Prepare a schedule of interest expense and lease payments over the lease term for the lease liability recognised by Near Ltd

$2.$ Prepare the journal entries for Near Ltd from $30$ June $20$X$4$ to $30$ June $20$X$5.$

$3.$ Calculate the fair value of the machine at the commencement of the lease.