User Account

All Pages

Determine the interest rate implicit in the lease

Assignment Help Financial Accounting
Reference no: EM132823631

On 30 June 2014, Elliott Ltd enters into a non-cancellable three-year lease agreement with Easy Finance Ltd to lease an item of machinery. At the inception of the lease, the machinery has a fair value of $71,272.

  • The machinery has an estimated useful life of four years. The residual value of the machinery at the end of the lease term is $10,000 and this has been guaranteed by Elliott Ltd. Elliott Ltd intends to return the machinery to Easy Finance Ltd at the end of the lease term.
  • The terms of the lease agreement require Elliott Ltd to make three annual payments of $23,000 commencing on 30 June 2015.
  • Elliott Ltd's policy is to depreciate leased assets using the straight-line method.
  • The interest rate implicit in the lease is 5%.

Required

Problem (a) Determine whether Elliott Ltd should classify the lease as an operating lease or a finance lease. Justify your answer.

Problem (b) How, from the perspective of the lessee, is the interest rate implicit in the lease defined? What interest rate would Elliott Ltd use if it could not determine the interest rate implicit in the lease at the inception of the lease?

Problem (c) Assume that the lease is classified as a finance lease by both Elliott Ltd and Easy Finance Ltd. Provide the journal entries in the books of both Elliott Ltd and Easy Finance Ltd on 30 June 2014 and 30 June 2015 to account for the lease.

Problem (d) How would your answer to (c) change if the fair value of the item of machinery as at 30 June 2014 was $66,000? Justify your answer.

Problem (e) What would happen if, at the end of the lease term on 30 June 2017, the machinery was returned to Easy Finance Ltd who immediately sold it for $8,000? Justify your answer.

Reference no: EM132823631

Questions Cloud

What role do audits play in the process : One of the topics being investigated this week is Safety Assurance (SA). As one component of this pillar of an SMS, it is crucial that the correct data.
What do have to put aside annually : If the interest rate is 4% and they start at the end of the year when they both get bonuses from their employers, what do they have to put aside annually?
What strategies will you use to build your personal brand : Share the resume and personal brand tips and examples that you found with your classmates. What strategies will you use to build your personal brand?
Find the derivative of the function : Find the derivative of the function and Determine the equation of the line tangent to the function - Find the derivative of the function
Determine the interest rate implicit in the lease : How, from the perspective of the lessee, is the interest rate implicit in the lease defined? What interest rate would Elliott Ltd use if it could not determine
What is the value of the loans : You are in dire need of $300 to cover an unexpected expense, as you are still 5 days away from your next paycheck. What is the value of the loans
Discuss about future of the commercial space industry : The future of the commercial space industry (summarize the current goals of the major commercial space flight companies and their plans for the future)
Find what are three elements of the definition for liability : Find What are the three elements of the definition for liabilities? List from GST payable items that are classified as liabilities and explain why, or why not
What is the balance in Accounts Receivable at June : During the month, the company had credit sales of $25,000 and collected Accounts Receivable of $27,000. What is the balance in Accounts Receivable at June 30

Reviews

Write a Review

Financial Accounting Questions & Answers

  Financial statement analysis and preparation

Financial Statement Analysis and Preparation

  Shareholder of a company

Describe the ways that a person can become a shareholder of a company. Why Wal-Mart would split its stock?

  Financial and accounting principles

An understanding of financial and accounting principles can be a valuable tool for managers. While not all managers will find themselves calculating financial ratios or preparing annual financial data.

  Prepare a statement of cash flow using the direct method

Prepare a Statement of Cash Flow using the Direct Method and Prepare the Operations section of the Statement of Cash Flow using the Indirect Method.

  Financial accounting assignment

This assignment has one case study and two question apart from case study. Questions related to document Liquidation question and Company financial statements question - Torquay Limited

  Prepare general journal entries for goela

Prepare general journal entries for Goela Ltd

  Principles of financial accounting

Prepare the journal entry to record the acquisition of the assets.

  Prepare general journal entries to record the transactions

Prepare general journal entries to record the transactions, assuming use of the periodic inventory system

  Global reporting initiative

Compare the view espoused by the economist Milton Friedman about the social responsibilities of business with the views express by Stigler.

  Explain the iasb conceptual frameworks

Explain the IASB Conceptual Framework's perspective of users and their decisions.

  Determine the company''s financial statements

T he focus of the report is to determine the extent to which you are comfortable relying on the financial statements as presented by management .

  Computation of free cash flow

Computation of Free Cash Flow

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd