Reference no: EM133024136

Questions -

a. Barry Limited and Allen Limited enter into a finance lease agreement with the following terms:

lease term is 4 years

estimated economic life of the leased asset is 5 years

4 × annual rental payments of $15 000 each payable in advance

residual value at the end of the lease term is not guaranteed by the lessee

interest rate implicit in the lease is 8%.

i. What is the present value of the lease payments on inception date?

ii. What would be the journal entry recorded by the lessor when the first lease payment is received?

b. On 30 June 2021, Monty Ltd leased a motor vehicle to Taylor Ltd. Monty Ltd had purchased the motor vehicle on that day for its fair value of $68 346. The lease agreement cost Monty $1659 to have drawn up and requires Taylor to reimburse Monty for annual insurance costs of $1500.

What is the amount recorded as a lease receivable by Monty Ltd at the inception of the lease is?

c. On 1 July 2021, One Ltd leased a network server from Short Ltd. The server had cost Short Ltd $32 000 on the same day. The lease agreement cost Short Ltd $1390 to set up and included the following:

Lease term 5 years

Estimated economic life of the network server 10 years

The lease is cancellable

Annual rental payment (in arrears) $6500

Residual value at end of lease term $24 000

Residual guarantee by One Ltd $0

Interest rate implicit in the lease 8%

i. What would be the journal entry recorded by the lessor to recognise the initial direct costs incurred?

ii. What would be the journal entry recorded by the lessor for the annual recognition of the initial direct costs?