Sarah Limited leased a machine which had a fair value of $57,030 to Jane Limited on 30 June 2018 with the following terms:

Lease term	4 years
Annual Rental Payment in arrears starting from 30 June 2019	$15,000
Economic life of the machine	5 years
Estimated residual value of machine at the end of the lease term	$10,000
Residual Value guaranteed by the lessee	$5,000
Interest Rate implicit in the lease	8%

The lessee plans to return the machine to the lessor at the end of the lease term.

Required:

The relevant discount rates are:

Year
30/06/2018	1
30/06/2019	0.9259
30/06/2020	0.8573
30/06/2021	0.7938
30/06/2022	0.7350

Required:

1. Calculate the present value of the lease payments.

2. Prepare the lease payment schedule for the lessee.

3. Prepare journal entries in the books of the lessee from the inception of the lease until the year ended 30 June 2021.

Note: Please round off to the nearest dollar. Narrations are not needed.

Answer rating: 100% (QA)

1 Calculate the present value of the lease ... View the full answer