80.2K

Verified Solution

Link Copied!

Steven Ltd (Lessor) and Shane Ltd (Lessee) enter into a lease agreement for a vehicle on 30 June 2020. Details of the lease agreement are as follows:

Lease term	3 years
Annual Rental Payment in advance starting from 30 June 2020	$36,500
Estimated Residual value at the end of the lease term	$10,000
Residual Value guaranteed by the lessee	$7,000
Interest Rate implicit in the lease	7%

The annual rental payment includes $1,500 that is reimbursed to the lessor to do the maintenance and insurance for the vehicle on behalf the lessee. The lessee intends to return the vehicle 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-20				103,995
30-Jun-20	35,000	-	35,000	68,995
30-Jun-21	35,000	4,830	30,170	38,824
30-Jun-22	35,000	2,718	32,282	6,542
30-Jun-23	7,000	458	6,542	0

Required:

Based on the above lease payments schedule, prepare the necessary journal entries in the books of the lessee on the following dates:

1. 30 June 2020

2. 30 June 2021

3. 30 June 2023

Narrations are NOT needed. (10 Marks)

Answer & Explanation Solved by verified expert

See Answer