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On 1 july 2011 cladd ltd leased a tractor from ally ltd the

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On 1 July 2011, Cladd Ltd leased a tractor from Ally Ltd. The tractor cost Ally Ltd $120,697. The lease agreement contained the following provisions:

  • Lease term - 3 years
  • Estimated useful life of tractor - 4 years
  • Annual lease payment, payable on 30 June each year - $39,000
  • Estimated residual value of tractor at end of lease term - $22,000
  • Residual value guaranteed by Cladd Ltd - $16,000
  • Interest rate implicit in lease - 7%

The lease is cancellable only with the permission of the lessor.

Question:(a) Classify the lease for Cladd Ltd.
(b) Prepare the lease payment schedule for Cladd Ltd and its journal entries to record the lease for the year ended 30 June 2012.

Reference no: EM13602910

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