70.2K

Verified Solution

Link Copied!

Avengers Ltd (Lessor) and Thanos Ltd (Lessee) enter into a lease agreement for a truck on 30 June 2019. On that date, the truck had a fair value of $40,988.

Details of the lease agreement are as follows:

Lease term	4 years
Annual Rental Payment in arrears starting from 30 June 2020	$12,000
Economic life of the Truck	6 years
Estimated Residual value at the end of the lease term	$8,000
Residual Value guaranteed by the lessee	$6,000
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 truck on behalf the lessee. The lessee intends to return the truck to the lessor at the end of the lease term.

The lease payment schedule for the lessee is shown below:

Date	Lease Payment	Interest Expense	Liability Reduction	Liability Balance
30-Jun-19				$39,404
30-Jun-20	$10,000	$2,364	$7,636	$31,768
30-Jun-21	$10,000	$1,906	$8,094	$23,674
30-Jun-22	$10,000	$1,420	$8,580	$15,094
30-Jun-23	$16,000	$906	$15,094	$0

Based on the above lease payments schedule, prepare journal entries in the books of the lessee from the start of the lease until the year ended 30 June 2022.

Narrations are NOT required.

Answer & Explanation Solved by verified expert

See Answer