Initial paymentAn initial payment of $100,000 to be paid on 1 October 2019Lease Payments ABC Ltd acquired

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Question:

Initial paymentAn initial payment of $100,000 to be paid on 1 October 2019Lease Payments
ABC Ltd acquired the use of mixer truck under a lease agreement which commences 1 October 2019. The lease contains the following key agreements:

2 payments of $170,000 to be paid on 30 September 2020 and 30 September 2021

Transfer of ownership

Ownership of the mixer truck will transfer to ABC Ltd on 30 September 2021 after final payment.

Interest rate

Implicit interest rate is 12%

Additional information:

· ABC estimates the trucks useful life is 8 years

· Incremental borrowing rate is 14%

· Legal costs incurred $10,000 in setting up the lease

TASK:

Please prepare the journal entries in relation to the lease in the books of ABC Ltd for the year beginning 1 October 2019 to ending 30 September 2020. Narrations are required and show all workings. Hint: You may use present value tables provided at the end of this exam paper.