Reference no: EM132841737
Question - Fred Ltd acquired an item of equipment and enters into a non-cancellable lease agreement with Melbourne Equipment Ltd on the 1st January, 2015.
The lease consists of the following information:
Date of inception: 1/1/15
Duration of the lease: 4 years
Life of the leased asset: 5 years
Lease Payments (annual): $320,000 (annual) which includes $40,000 for Maintenance and insurance costs per annum.
Guaranteed residual value (Added to the final payment): $120,000
Interest Rate: 10%
Required -
a) Determine the present value of minimum lease rental payment.
b) Prepare the journal entries for John Ltd (the Lessee) using the Net Method for the following:
Transfer of control
Payment of annual payments for 2015 and 2016.