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Calculate the present value of the minimum lease payments

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Reference no: EM132905462

On 1 July 2015, Blinky Ltd leased a tyre-making machine from Bill of $154,109 on 1 July 2015. The lease agreement contained the followingprovisions:

Leaseterm 4years
Annual payment, payable in advance on 1 July each year $41,500 Residual value at end of th elease term $15,000
Residual guaranteed by lessee nil
Interest rate implicit inthe lease 8%

  • The lease is cancellable only with the permission of the lessor.
  • The expected useful life of the machine is 6 years. Blinky Ltd intends to return the machine to the lessor at the end of the lease term. The annual payment includes an amount of $1500 per annumto coverthe cost sofmaintenance and insurance paid by the lessor on behalf of the lessee.

Required:

Problem (i) Calculate the present value of the minimum lease payments (PVMLP).

Problem (ii) Classify the lease for the lessee. Justify your answer.

Problem (iii) Prepare the lease payment schedule for the lessee, Blinky Ltd (show allworkings).

Reference no: EM132905462

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