Problem: On 1 July 2023, Foto-1 Ltd leased a photocopier from Zerox Ltd, a company that manufactures, retails and leases copiers. The photocopier had cost Zerox Ltd $20,000 to make. The lease agreement contained the following provisions:
Lease term 4 years
Initial payment upon signing of lease on 1 July 2023 $30,000
Annual payments payable on 30 June 2024, 2025, 2026 and 2027. $21,300
Economic life of the copier 5 years
Residual value at the end of the lease term $3,000
Residual value guaranteed by lessee $1,500
Each of the four annual payments included an amount of $1,100 p.a. to reimburse Zerox Ltd for the cost of paper and toner provided to Foto-1 Ltd over the past year. Zerox Ltd's solicitor prepared the lease agreement for a fee of $450. The lease is cancellable only with the permission of the lessor. Foto Ltd intends to return the copier to Zerox Ltd at the end of the lease term.
Required:
A. Prepare the lease receipts schedule for Zerox Ltd using the interest rate implicit in the lease of X% (You will be advised of the interest rate to use during the workshop). Show all workings and round off to the nearest dollar.
B. Prepare the journal entries for Zerox Ltd for the full year from 1 July 2023 to 30 June 2024. Show all workings and round off to the nearest dollar. Narrations are required.