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Prepare the journal entries for sky ltd from july

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Reference no: EM132740930

On 1 July 2019, Sky Ltd purchased equipment and then leased it to Blue Ltd. Blue Ltd incurred $1 200 in costs to negotiate the lease agreement. Sky Ltd incurred $3 000 in initial costs to execute the lease agreement. The lease agreement details are as follows.

Lease Term 4 years
Annual rental payments (payable in advance on 1 July each year)$ 57 000
Residual value at the end of the lease term $10 000
Residual value guarantee $ 9 000
Amount of the residual value guarantee that is expected to be payable by the lessee at the end of the lease term$2 000
Interest rate implicit in the lease 5%

Blue Ltd expects to return the equipment to Sky Ltd at the end of the 4-year lease term. The annual rental payments include an amount of $7,000 to cover the cost of maintenance and repairs that were arranged and paid for by Sky Ltd.

Required:

Problem a) Determine the fair value of equipment on 1 July 2019. Show all your workings.

Problem b) Assuming that the lease is a finance lease from the perspective of Sky Ltd, prepare the journal entries for Sky Ltd from 1 July 2019 to 30 June 2020.

Reference no: EM132740930

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