2. On 1 July 2013, Jane Plum decided she needed a new car. She went to...

 

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2. On 1 July 2013, Jane Plum decided she needed a new car. She went to the local car yard, North Ltd, run by Fred Peach. Jane discussed the price of a new Roadster Special with Fred, and they agreed on a price of $37 000. As North Ltd had acquired the vehicle from the manufacturer for $30 000, Fred was pleased with the deal. On learning that Jane wanted to lease the vehicle, Fred agreed to arrange for South Ltd, a local finance company, to set up the lease agreement. North Ltd then sold the car to South Ltd for $37 000. South Ltd wrote a lease agreement, incurring initial direct costs of $1410 as a result. The lease agreement contained the following provisions: Initial payment on 1 July 2013 Payments on 1 July 2014 and 1 July 2015 Guaranteed residual value at 30 June 2016 Implicit interest rate in the lease The lease is non-cancellable. $13 000 $13 000 $10000 6% South Ltd agreed to pay for the insurance and maintenance of the vehicle, the latter to be carried out by North Ltd at regular intervals. The cost of these services is valued at $3000 p.a. The vehicle had an expected useful life of 4 years. The expected residual value of the vehicle at 30 June 2016 was $12 000. Costs of maintenance and insurance incurred by South Ltd over the years ended 30 June 2014 to 30 June 2016 were $2810, $3020 and $2750 respectively. At 30 June 2016, Jane returned the vehicle to South Ltd, which sold the car for $9000 on 5 July 2016 and invoiced Jane for the appropriate balance. Jane subsequently paid the debt on 13 July 2016. Required Assuming the lease is classified as a finance lease, prepare the journal entries in the books of South Ltd in relation to the lease from 1 July 2013 to 31 July 2016. 2. On 1 July 2013, Jane Plum decided she needed a new car. She went to the local car yard, North Ltd, run by Fred Peach. Jane discussed the price of a new Roadster Special with Fred, and they agreed on a price of $37 000. As North Ltd had acquired the vehicle from the manufacturer for $30 000, Fred was pleased with the deal. On learning that Jane wanted to lease the vehicle, Fred agreed to arrange for South Ltd, a local finance company, to set up the lease agreement. North Ltd then sold the car to South Ltd for $37 000. South Ltd wrote a lease agreement, incurring initial direct costs of $1410 as a result. The lease agreement contained the following provisions: Initial payment on 1 July 2013 Payments on 1 July 2014 and 1 July 2015 Guaranteed residual value at 30 June 2016 Implicit interest rate in the lease The lease is non-cancellable. $13 000 $13 000 $10000 6% South Ltd agreed to pay for the insurance and maintenance of the vehicle, the latter to be carried out by North Ltd at regular intervals. The cost of these services is valued at $3000 p.a. The vehicle had an expected useful life of 4 years. The expected residual value of the vehicle at 30 June 2016 was $12 000. Costs of maintenance and insurance incurred by South Ltd over the years ended 30 June 2014 to 30 June 2016 were $2810, $3020 and $2750 respectively. At 30 June 2016, Jane returned the vehicle to South Ltd, which sold the car for $9000 on 5 July 2016 and invoiced Jane for the appropriate balance. Jane subsequently paid the debt on 13 July 2016. Required Assuming the lease is classified as a finance lease, prepare the journal entries in the books of South Ltd in relation to the lease from 1 July 2013 to 31 July 2016.

Answer rating: 100% (QA)

SOUTH LTD JOURNAL ENTRIES DATE ACCOUNT TITLES DEBIT CREDIT July 1 2013 Vehicle 37000 To Cash 37000 B... View the full answer