Reference no: EM132504552
Accounting for a finance lease by the lessee and the lessor
On 1 July 2015, Standing Ltd leased a processing plant to Fell Ltd. The plant was purchased by Standing Ltd on 1 July 2015 for its fair value of $467 112. The lease agreement contained the following provisions:
Lease term - 3 years
Economic life of plant - 5 years
Annual rental payment, in arrears (commencing 30/6/2016) - $150000
Residual value at end of the lease term - $90000
Residual guaranteed by lessee - $60000
Interest rate implicit in lease - 7%
The lease is cancellable only with the permission of the lessor.
- Fell Ltd intends to return the processing plant to the lessor at the end of the lease term. The lease has been classified as a finance lease by both the lessee and the lessor.
Required
Question A. Make the lease payment schedule for the lessee (show all workings); and (2) the journal entries in the records of the lessee for all years of the lease.
Question B. Make the lease receipt schedule for the lessor (show all workings); and (2) the journal entries in the records of the lessor for all years of the lease.
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