Prepare the lease payment schedule for the lessee

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Reference no: EM132755455

Trump Ltd (Lessor) and Biden Ltd (Lessee) enter into a lease agreement for a tractor on 30 June 2019. On that date, the tractor had a fair value of $150,486.

Details of the lease agreement are as follows:

Lease term                                                                      4 years
Annual Rental Payment in arrears starting from 30 June 2020    $42,000
Economic life of the Tractor                                                  6 years
Estimated Residual value at the end of the lease term                $15,000
Residual Value guaranteed by the lessee                                   $10,000
Interest Rate implicit in the lease                                                  6%

The annual rental payment includes $2,000 that is reimbursed to the lessor to do the maintenance and insurance for the tractor on behalf the lessee. The lessee intends to return the tractor to the lessor at the end of the lease term.

The relevant discount rates are:

Year

30/06/2019               1
30/06/2020            0.9434
30/06/2021               0.8900
30/06/2022             0.8396
30/06/2023               0.7921

Required:

Problem 1. Calculate the present value of the lease payments.

Problem 2. Prepare the lease payment schedule for the lessee.

Problem 3. Prepare journal entries in the books of the lessee from the start of the lease until the year ended 30 June 2021 (Narrations are not required).

Reference no: EM132755455

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