Question
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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