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Determine the present value of minimum lease rental payment

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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.

Reference no: EM132841737

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