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On 1 July 2017, Lawn & Order: Special Grass Unit Ltd (LOSGU Ltd) leased five lawn mowers from Lawn Mowers Direct Ltd. The total fair value of the lawn mowers was $8,000.
The term of lease is for 5 years, after which the lawn mowers will be returned to the lessor. LOGSU Ltd uses straight-line depreciation for its lawn mowers.
There is an initial lease payment of $500 on the inception of the lease (1 July 2017) and annual lease payments of $1,500 on 30 June each year thereafter (starting 30 June 2018).
Required:
Problem (a) Calculate the interest rate implicit in the lawn mower lease contract (provide an explanation of how you reach this figure).
Problem (b) Produce a lease payment schedule for the first 3 years of the lease term.
Problem (c) Provide ALL the necessary journal entries relating to the lease arrangement in the books of LOSGU Ltd from the inception of the lease to the period ending 30 June 2018.
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