Question: Practical Question 2 - Leases Hulk Ltd (Lessor) and Vision Ltd (Lessee) enter into a lease agreement for a crane on 30 June 2019. On
Practical Question 2 - Leases
Hulk Ltd (Lessor) and Vision Ltd (Lessee) enter into a lease agreement for a crane on 30 June 2019. On that date, the crane had a fair value of $150,486.
Details of the lease agreement are as follows:
| Lease term | 4 years |
| Annual Rental Payment in arrears starting from 30 June 2020 | $42,000 |
| Economic life of the Crane | 6 years |
| Estimated Residual value at the end of the lease term | $15,000 |
| Residual Value guaranteed by the lessee | $10,000 |
| Interest Rate implicit in the lease | 6% |
The annual rental payment includes $2,000 that is reimbursed to the lessor to do the maintenance and insurance for the crane on behalf the lessee. The lessee intends to return the crane to the lessor at the end of the lease term.
The lease payments schedule for the lessee is shown below:
| Date | Lease Receipts | Interest Revenue | Receivable Reduction | Receivable Balance |
| 30-Jun-19 |
|
|
| $146,525 |
| 30-Jun-20 | $40,000 | $8,792 | $31,209 | $115,317 |
| 30-Jun-21 | $40,000 | $6,919 | $33,081 | $82,235 |
| 30-Jun-22 | $40,000 | $4,934 | $35,066 | $47,170 |
| 30-Jun-23 | $40,000 | $2,830 | $37,170 | $10,000 |
| 30-Jun-23 | $10,000 | 0 | $10,000 | $0 |
Required:
Based on the above lease payments schedule, prepare journal entries in the books of the lessee from the start of the lease until the year ended 30 June 2022. (10 Marks).
Narrations are NOT required.
| DATE | DESCRIPTION | DR | CR |
|---|---|---|---|
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