On 1 July 2021, Melbourne Ltd leased a building from Sydney Ltd. The following are details...

 

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On 1 July 2021, Melbourne Ltd leased a building from Sydney Ltd. The following are details of the building and the lease contract: • The building has a fair value of $220,000. • Lease term is 5 years, useful life of the building is 6 years, and Melbourne Ltd will leave the building at the end of the lease term. • Lease payments are in advance and will be paid on 1 July of each year, starting 1 July 2021, with $50,000 as the annual payment. Included in the annual payment is $2,000 to reimburse Sydney Ltd for payment on the insurance policy. • Residual value of the building at the end of the lease term is $16,000, with Melbourne Ltd guaranteeing $12,000 of the residual value. • The interest rate implicit in the lease arrangement is 6% In setting up the lease arrangement Melbourne Ltd incurred $4,707, while Sydney Ltd incurred $6,282. Required: a) Prepare all the necessary journal entries for Melbourne Ltd (lessee) for the financial year 1 July 2021-30 June 2022 (PV details are provided in the answer template) (12 marks) b) Calculate the balance of the lease receivable on 1 July 2022 for Sydney Ltd. (3 marks) On 1 July 2021, Melbourne Ltd leased a building from Sydney Ltd. The following are details of the building and the lease contract: • The building has a fair value of $220,000. • Lease term is 5 years, useful life of the building is 6 years, and Melbourne Ltd will leave the building at the end of the lease term. • Lease payments are in advance and will be paid on 1 July of each year, starting 1 July 2021, with $50,000 as the annual payment. Included in the annual payment is $2,000 to reimburse Sydney Ltd for payment on the insurance policy. • Residual value of the building at the end of the lease term is $16,000, with Melbourne Ltd guaranteeing $12,000 of the residual value. • The interest rate implicit in the lease arrangement is 6% In setting up the lease arrangement Melbourne Ltd incurred $4,707, while Sydney Ltd incurred $6,282. Required: a) Prepare all the necessary journal entries for Melbourne Ltd (lessee) for the financial year 1 July 2021-30 June 2022 (PV details are provided in the answer template) (12 marks) b) Calculate the balance of the lease receivable on 1 July 2022 for Sydney Ltd. (3 marks)

Answer rating: 100% (QA)

Solution a Lease term 5 years Useful life of building 6 years Annual Payment 50000 Residual value 16... View the full answer