Prepare general journal entries in the books of the lessee

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Question - Chilly Ltd leased a freezer (with a useful life of 6 years and a fair value of $5,027) from Freeze Ltd on 1 July 2014 for a period of 5 years (5 payments) through a non-cancellable lease. The lease payments of $1,300, including reimbursement of Freeze Ltd's executory costs of $300 per year, are made in arrears (at the end of each year). There is a guaranteed residual of $700 at the end of the lease term. The interest rate implicit in the lease is 4%.

Required -

a. Explain whether this is a finance or operating lease and why it is important to determine this.

b. According to the requirements of AASB 117, prepare general journal entries in the books of the lessee, Chilly Ltd for:

i. 1 July 2014

ii. 30 June 2015

Narrations are not required. Round all calculations to the nearest dollar where necessary - show all your workings.

Reference no: EM132439170

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