Question
The Man Po Automobile Company leases automobiles under the following terms. A three-year lease agreement is signed on 1 May 2015. At the end of
The Man Po Automobile Company leases automobiles under the following terms.
A three-year lease agreement is signed on 1 May 2015. At the end of the lease term, the asset will be returned to the lessor.
The lessor receives annual rental of $4,000 in advance.
The guaranteed residual value is $5,000. The expected residual value is $1,500 at the end of lease term.
The price of the automobile is $14,500.
The implicit interest rate (used by the lessor) is 12%, which is known to the lessee, and the lessees incremental borrowing rate is 14%.
The lessee depreciates its automobiles on a straight-line basis.
The useful life of the automobile is 5 years.
1st payment 1 May 2015 and subsequent payments on 30 Apr each year (reporting date)
Required:
Prepare the entries on the lessees books for the above lease transactions in the year of 2015, 2016, 2017 and 2018.
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