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Prepare relevant journal entries of entity a

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Reference no: EM132420097

Problem: On 1 March 2019, Entity A signed a contract with Entity B for the lease of a plant for using in its production process. The lease contract is non-cancellable.

According to the contract, a non-refundable payment of $100,000 is required to pay to Entity B at the commencement date which is 1 April 2019.

The other terms of the contract include:

  • Lease term of 5 years at an annual rental of $1,000,000 paid in arrears
  • Option to extend for a further 3 years at an annual rental of $100 paid in arrears
  • Residual value guarantee at the end of the lease term of 5 years is $50,000.
  • Residual value guarantee at the end of the lease term of 8 years is $2,000.

Entity A pays the initial direct cost of $5,000 on credit and they are settled on 1 June 2019.

The interest rate implicit is assumed at 8.1%.

REQUIRED:

Prepare relevant journal entries of Entity A from 1 Mar 2019 to 31 Mar 2020.

Reference no: EM132420097

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