Financial Accounting Question-
On 1 July 2015, Fast Ltd leased a machine from Furious Ltd. The machine had a fair value of $235,000 on 1 July 2015. The lease agreement contained the following provisions:
- Non-cancellable lease term - 3 years
- Economic life of plant - 5 years
- Annual rental payment, in advance (1st payment 1/07/15) - $80,000
- Residual value at the end of the lease term - $30,000
- Residual value guaranteed by the lessee - $12,000
- Interest rate implicit in the lease - 8%
Fast Ltd intends to return the machine to Furious Ltd at the end of the lease term. The following is extracted from present value and annuity factor tables:
|
Period/number of payments
|
Present value of $1 at 8%
|
Present value of an annuity of $1 at 8%
|
|
2
|
0.8673
|
1.7833
|
|
3
|
0.7938
|
2.5771
|
Required:
a) Prepare a lease schedule for the lessee (round to the nearest dollar).
b) Prepare journal entries in the books of the lessee, for 1 July 2015 and 30 June 2016.