On 1 July 2015, Blinky Ltd leased a tyre-making machine from Bill Ltd. The machine cost Bill Ltd $130,000 to manufacture and had a fair value of $154,109 on 1 July 2015. The lease agreement contained the following provisions: Lease term 4 years Annual payment, payable in advance on 1 July each year $41,500Residual value at end of the lease term $15,000Residual guaranteed by lessee nil Interest rate implicit in the lease 8%
The lease is cancellable only with the permission of the lessor. The expected useful life of the machine is 6 years. Blinky Ltd intends to return the machine to the lessor at the end of the lease term. The annual payment includes an amount of $1500 per annum to cover the costs of maintenance and insurance paid by the lessor on behalf of the lessee.
Required:

(i) Calculate the present value of the minimum lease payments (PVMLP).

(ii) Classify the lease for the lessee. Justify your answer.

(iii) Prepare the lease payment schedule for the lessee, Blinky Ltd (show all workings).

(iv) Prepare all the journal entries to account for the lease transactions in the books of the lessee, Blinky Ltd for the financial year ended 30 June 2016. Do not do journal entries for 2017 or 2018.

Answer rating: 100% (QA)

i Calculate the present value of the minimum lease payments PVMLP PVMLP 41500 15000 41500 15000 4150... View the full answer