Question $4(12$ marks$)$

Accounting for leases

The following details relate to a non$-$cancellable right$-$to$-$use lease agreement between East$-$West Ltd$.($the Lessor$)$ and SeaWater Ltd$.($the Lessee$)$ for the lease of a small $38$ metre, coastal vehicle transport ferry built in $2015.$

$$ Inception date: July $1,2021$

$$ Term of Lease: $10$ Years

$$ Ten annual lease payments in arrears $($the first due on June $30,2022)$: $$460,000\mathrm{.}00$

$$ Bargain$-$Purchase Option price at end of lease term: $$700000\mathrm{.}00$

$$ Guaranteed residual: $$1,100,000\mathrm{.}00$

$$ Initial Lease Inception Payment, payable $1$ July $2022$: $$100000\mathrm{.}00$

$$ Contracted Service & Maintenance Costs per year: $$90,000\mathrm{.}00$

$$ Remaining economic life of leased equipment: $15$ years

$$ Fair value of asset at $1$ July $2021$: $$3,239,860\mathrm{.}00$

Required:

a$)$ Prove that the implicit rate of interest is $9\%.($Refer to Present value tables provided

at $($see the appendix page at the end this exam paper$).(5$ marks$)$

b$)$ Prepare a part Lease Schedule of Payments $($table$)$ for the period from Lease Inception $(1$ July $2020)$ for the first three years, then show the applicable journal entries on the lessee$$s books for the first three years of lease payments $(2022,2023$ & $2024).$ SeaWater Ltd$.$s annual accounting period ends on June $30.$

$(7$ marks$)$