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Steven Ltd (Lessor) and Shane Ltd (Lessee) enter into a lease agreement for a vehicle on 30 June 2020. Details of the lease agreement are

Steven Ltd (Lessor) and Shane Ltd (Lessee) enter into a lease agreement for a vehicle on 30 June 2020. Details of the lease agreement are as follows:

Lease term

3 years

Annual Rental Payment in advance starting from 30 June 2020

$36,500

Estimated Residual value at the end of the lease term

$10,000

Residual Value guaranteed by the lessee

$7,000

Interest Rate implicit in the lease

7%

The annual rental payment includes $1,500 that is reimbursed to the lessor to do the maintenance and insurance for the vehicle on behalf the lessee. The lessee intends to return the vehicle to the lessor at the end of the lease term.

The lease payment schedule for the lessee is shown below:

Date

Lease Payment

Interest Expense

Liability Reduction

Liability Balance

30-Jun-20

103,995

30-Jun-20

35,000

-

35,000

68,995

30-Jun-21

35,000

4,830

30,170

38,824

30-Jun-22

35,000

2,718

32,282

6,542

30-Jun-23

7,000

458

6,542

0

Required:

Based on the above lease payments schedule, prepare the necessary journal entries in the books of the lessee on the following dates:

1. 30 June 2020

2. 30 June 2021

3. 30 June 2023

Narrations are NOT needed. (10 Marks)

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