Reference no: EM132793151
Question - Grocerypro Inc. leased a truck from a truck dealer, Warrington plc. Warrington plc acquired the truck at a cost of £320,000. Newcastle plc plans to keep the truck after the lease but has not made any commitment to the lessor to purchase it.
The terms of the lease are as follows:
Date of entering lease: 1 July 2017
Duration of lease: 4 years
Life of leased asset: five years, after which it will have no residual value.
Lease payment: £100,000 at the end of each year (e.g. 30 June 2018, 2019...).
Interest rate implicit in the lease: 10 percent
Unguaranteed residual value: £50,000
Fair value of truck at the inception of the lease £351,140
Required -
How to prepare the journal entries to account for the lease transaction in the books of the lessor, Warrington plc, at 1 July 2017 and 30 June 2018.
How to prepare the journal entries to account for the lease transaction in the books of the lessee, Newcastle plc, at 1 July 2017 and 30 June 2018.
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