Prepare lease payment schedule for the lessee

Reference no: EM133084415

Question: Accounting for a finance lease by the lessee and lessor

On I July 2015. Standing Ltd leased a processing plant to Fell Ltd. The plant was purchased by Standing Ltd on I July 2015 for its fair value of $467 112. The lease agreement contained the following provisions:

Lease term 3 years

Economic Ills of plant 5 years

Annual rental payment, in arrears (commencing 30/612016) 5150000

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

A. Prepare (I) 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.

B. Prepare (I) 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.

Reference no: EM133084415

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