On 1 July 2019, Subang Ltd leased an item of machinery to Kedah Ltd. The machinery...

 

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On 1 July 2019, Subang Ltd leased an item of machinery to Kedah Ltd. The machinery has a fair value of $458 010 at the inception of the lease and it is expected to have an economic life of 5 years. The lease agreement details are as follows. Lease Term Commencement date Annual lease payment, in arrears (commencing 30 June 2020) Residual value at end of lease term Guaranteed residual value by lessee Interest rate implicit in the lease Lease is not cancellable 3 years 1 July 2019 $165 000 $90 000 $60 000 8% All insurance and maintenance costs are paid by Subang Ltd and are expected to amount to $15 000 per year. These costs will be reimbursed by Kedah Ltd by being included in the annual lease payment of $165 000. It is expected that Kedah Ltd will return the machinery to Subang Ltd at the end of the lease. Subang Ltd and Kedah Ltd have a reporting period ending 30 June. Required: (a) Prepare a lease payments schedule and the journal entries in the records of Kedah Ltd for the year ended 30 June 2019 and 30 June 2020. Show all workings. (8 marks) (b) Prepare a lease receipts schedule and the journal entries in the records of Subang Ltd for the year ending 30 June 2020. Show all workings. (8 marks) Present Value of $1-discount factor Period 7% 8% 9% 0.9346 0.9259 0.9174 2 0.8734 0.8573 0.8417 3 0.8163 0.7938 0.7722 4 0.7629 0.7350 0.7084 Present value of an annuity of $1 per period for n periods Period 7% 8% 9% 0.9346 0.9259 0.9174 2 1.8080 1.7833 1.7591 3 2.6243 2.5771 2.5313 4 3.3872 3.3121 3.2397 On 1 July 2019, Subang Ltd leased an item of machinery to Kedah Ltd. The machinery has a fair value of $458 010 at the inception of the lease and it is expected to have an economic life of 5 years. The lease agreement details are as follows. Lease Term Commencement date Annual lease payment, in arrears (commencing 30 June 2020) Residual value at end of lease term Guaranteed residual value by lessee Interest rate implicit in the lease Lease is not cancellable 3 years 1 July 2019 $165 000 $90 000 $60 000 8% All insurance and maintenance costs are paid by Subang Ltd and are expected to amount to $15 000 per year. These costs will be reimbursed by Kedah Ltd by being included in the annual lease payment of $165 000. It is expected that Kedah Ltd will return the machinery to Subang Ltd at the end of the lease. Subang Ltd and Kedah Ltd have a reporting period ending 30 June. Required: (a) Prepare a lease payments schedule and the journal entries in the records of Kedah Ltd for the year ended 30 June 2019 and 30 June 2020. Show all workings. (8 marks) (b) Prepare a lease receipts schedule and the journal entries in the records of Subang Ltd for the year ending 30 June 2020. Show all workings. (8 marks) Present Value of $1-discount factor Period 7% 8% 9% 0.9346 0.9259 0.9174 2 0.8734 0.8573 0.8417 3 0.8163 0.7938 0.7722 4 0.7629 0.7350 0.7084 Present value of an annuity of $1 per period for n periods Period 7% 8% 9% 0.9346 0.9259 0.9174 2 1.8080 1.7833 1.7591 3 2.6243 2.5771 2.5313 4 3.3872 3.3121 3.2397