Beta Limited, which has an accounting year end of 31December 20X5, had entered into the following leasing
Question:
Beta Limited, which has an accounting year end of 31December 20X5, had entered into the following leasing arrangement with other companies:
(2) Beta Limited leased a machine from Alpha Limited on 1 January 20X5. The lease terms required Beta Limited to pay 3 annual payments of $42,000 to Alpha Limited beginning 1 January 20X5. The expected useful life of the machine was 6 years. At the end of the lease period, the machine will be transferred back to Alpha Limited. The fair market value of the machine at 1 January 20X5 was $150,000.
Assume that the interest rate implicit in both leases are 12%.
Required: (rounded up to the nearest dollar)
Present Value Table:
Referring to the lease arrangement between Beta and Alpha Limited
(i) Discuss whether it is a finance lease or an operating lease.
(ii) Prepare the journal entries to record the lease transactions for the year ended 31 December 20X5 in Hirer Limited’s book.
| Years | PV factor @12% |
| 1 | 0.8929 |
| 2 | 0.7972 |
| 3 | 0.7118 |
| 4 | 0.6355 |
| 5 | 0.5674 |
| 6 | 0.5066 |
Working:
(b) (ii) Accounting entries in Limited’s book (lessor):
Dr$ Cr $
1 Jan 20X5
Expert Answer:
Financial and Managerial Accounting the basis for business decisions
ISBN: 978-0078111044
16th edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello
