Supply Ltd entered into a non-cancellable five-year lease arrangement with Customer Ltd on 1 July 2019. The
Question:
Supply Ltd entered into a non-cancellable five-year lease arrangement with Customer Ltd on 1 July 2019. The lease is for an item of machinery. There are to be five annual payments of $315 000, the first being made on 30 June 2020. The implicit interest rate is 12%. The Machinery is expected to have an economic life of six years, after which time it will have an expected residual value of $210 000. There is a bargain purchase option that Customer Ltd will be able to exercise at the end of the fifth year for $280 000. Customer Ltd determined that this contract contains a lease.
REQUIRED:
Prepare the journal entries in the books of the lessee (Customer Ltd) from 1 July 2019 to 30 June 2020 (the end of the reporting period). Show all working.
Accounting What the Numbers Mean
ISBN: 978-0073527062
9th Edition
Authors: David H. Marshall, Wayne W. McManus, Daniel F. Viele,