Question - On 1 July 2011, Cerise Ltd leased a crane from Azure Ltd. The crane cost Azura Ltd $120,697. The lease agreement contained the following provisions:
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Lease term
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3 years
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Estimated useful life of crane
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4 years
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Annual lease payment, payable on 30 June each year
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$39,000
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Estimated residual value of crane at end of lease term
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$22,000
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Residual value guaranteed by Cerise Ltd
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$16,000
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Interest rate implicit in lease
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7%
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The lease is cancellable only with the permission of the lessor.
Required:
(a) Classify the lease for Cerise Ltd.
(b) Prepare the lease payment schedule for Cerise Ltd and its journal entries to record the lease for the year ended 30 June 2012.