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Prove the interest rate implicit in the lease

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Reference no: EM132823934

Question - Valentina Ltd, on 1 July 2020, sells a truck having a carrying amount on its books of $100 000 to George Ltd for $140 000 and immediately leases the truck back under the following conditions:

The term of the lease is 10 years, non-cancellable, and requires lease payments of $30 000 at the end of each year.

The estimated economic life of the tractor is 10 years.

There is no residual value.

Lessee pays $7216 executory cost (these costs are included in the lease payments).

The implicit rate of interest in the lease is 10 per cent.

Required -

(a) Prove the interest rate implicit in the lease is 10 per cent.

(b) Prepare the journal entries for the lessee for the first year of the lease.

(c) Prepare the journal entries for the lessee for the second year of the lease.

Reference no: EM132823934

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