Mini Ltd leased a machine from Levi Ltd. The lease is for an item of machinery that,
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Question:
Mini Ltd leased a machine from Levi Ltd. The lease is for an item of machinery that, at the inception of the lease, has a fair value of $1,298,674. There is a bargain purchase option that Mini Ltd will be able to exercise at the end of the fifth year for $260,000.
The terms of the lease are as follows:
- Date of entering lease: 1 July 2019.
- Duration of lease: five years.
- Life of leased asset: six years.
- Lease payments: $320,000 on 30 June each year (starting 30 June 2020).
- Included within the $320,000 lease payments is an amount of $20,000 representing payment to the lessor for the insurance and maintenance of the equipment.
- Interest rate implicit in the lease: 10 per cent.
- The equipment is to be depreciated on a straight-line basis.
Required:
- Prepare the journal entries to account for the lease in the books of Mini Ltd at 1 July 2019 and for the year ending 30 June 2020. (6 marks)
Related Book For
Intermediate Accounting Reporting and Analysis
ISBN: 978-1285453828
2nd edition
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach
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