Silver ltd leased a processing plant to emerald ltd the

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Reference no: EM13599684

On 1 July 2009, Silver Ltd leased a processing plant to Emerald Ltd. The plant was purchased by Silver Ltd on 1 July 2009 for its fair value of $467,112. The lease agreement contained the following provisions:

Lease term 3 years
Economic life of plant 5 years
Annual rental payment, in arrears (commencing 30/6/2010) $150,000
Residual value at end of the lease term $90,000
Residual guaranteed by lessee $60,000
Interest rate implicit in lease 7%
The lease is cancellable only with the permission of the lessor.

Emerald Ltd intends to return the processing plant to the lessor at the end of the lease term. The lease has been classified as a finance lease by both the lessee and the lessor.

Required:

(a) Prepare the lease payment schedule for the lessee (show all workings), and the journal entries in the records of the lessee for the year ended 30 June 2011.

(b) Prepare the lease receipt schedule for the lessor (show all workings), and the journal entries in the records of the lessor for the year ended 30 June 2011.

Reference no: EM13599684

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