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Prepare the journal entries in relation to the lease in book

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Reference no: EM132718726

ABC Ltd acquired the use of mixer truck under a lease agreement which commences 1 October 2019. The lease contains the following key agreements:

Initial payment : An initial payment of $100,000 to be paid on 1 October 2019
Lease Payments: 2 payments of $170,000 to be paid on 30 September 2020 and 30 September 2021
Transfer of ownership: Ownership of the mixer truck will transfer to ABC Ltd on 30 September 2021 after final payment.
Interest rate : Implicit interest rate is 12%

Additional information:

  • ABC estimates the trucks useful life is 8 years
  • Incremental borrowing rate is 14%
  • Legal costs incurred $10,000 in setting up the lease

Problem 1: Prepare the journal entries in relation to the lease in the books of ABC Ltd for the year beginning 1 October 2019 to ending 30 September 2020. Narrations are required and show all workings.

Reference no: EM132718726

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