On 1 July 2022, Shaggy Ltd leased a processing plant to Scooby Ltd. The plant was purchased by Shaggy Ltd on 1 July 2022 for its fair value of $353 000. The lease agreement contained the following provisions: Lease term 3 years Economic life of plant 5 years Annual rental payment, in arrears (commencing 30/6/23) $120 000 Residual value at end of the lease term $50 000 Residual guaranteed by lessee $30 000 Interest rate implicit in lease 7% The processing plant will be depreciated by Scooby Ltd on a straight-line basis. Scooby Ltd intends to return the processing plant to Shaggy Ltd at the end of the lease term. The lease has been classified as a finance lease by Shaggy Ltd. Initial direct costs for setting up the lease were incurred by both parties: $1 595 for Scooby Ltd and $2731 for Shaggy Ltd. Required: Prepare the lease payments schedule for Scooby Ltd. Prepare the journal entries in the records of Scooby Ltd on 1 July 2022 and for 30 June 2023. Prepare the lease receipts schedule for Shaggy Ltd. Prepare the journal entries in the records of Shaggy Ltd on 1 July 2022 and for 30 June 2023.
On 1 July 2022, Shaggy Ltd leased a processing plant to Scooby Ltd. The plant was purchased by Shaggy Ltd on 1 July 2022 for its fair value of $353 000. The lease agreement contained the following provisions: Lease term 3 years Economic life of plant 5 years Annual rental payment, in arrears (commencing 30/6/23) $120 000 Residual value at end of the lease term $50 000 Residual guaranteed by lessee $30 000 Interest rate implicit in lease 7% The processing plant will be depreciated by Scooby Ltd on a straight-line basis. Scooby Ltd intends to return the processing plant to Shaggy Ltd at the end of the lease term. The lease has been classified as a finance lease by Shaggy Ltd. Initial direct costs for setting up the lease were incurred by both parties: $1 595 for Scooby Ltd and $2731 for Shaggy Ltd. Required: Prepare the lease payments schedule for Scooby Ltd. Prepare the journal entries in the records of Scooby Ltd on 1 July 2022 and for 30 June 2023. Prepare the lease receipts schedule for Shaggy Ltd. Prepare the journal entries in the records of Shaggy Ltd on 1 July 2022 and for 30 June 2023.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 6P: Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a...
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On 1 July 2022, Shaggy Ltd leased a processing plant to Scooby Ltd. The plant was purchased by Shaggy Ltd on 1 July 2022 for its fair value of $353 000. The lease agreement contained the following provisions:
|
Lease term |
3 years |
|
Economic life of plant |
5 years |
|
Annual rental payment, in arrears (commencing 30/6/23) |
$120 000 |
|
Residual value at end of the lease term |
$50 000 |
|
Residual guaranteed by lessee |
$30 000 |
|
Interest rate implicit in lease |
7% |
The processing plant will be depreciated by Scooby Ltd on a straight-line basis. Scooby Ltd intends to return the processing plant to Shaggy Ltd at the end of the lease term. The lease has been classified as a finance lease by Shaggy Ltd.
Initial direct costs for setting up the lease were incurred by both parties: $1 595 for Scooby Ltd and $2731 for Shaggy Ltd.
Required:
- Prepare the lease payments schedule for Scooby Ltd.
- Prepare the
journal entries in the records of Scooby Ltd on 1 July 2022 and for 30 June 2023. - Prepare the lease receipts schedule for Shaggy Ltd.
-
Prepare the journal entries in the records of Shaggy Ltd on 1 July 2022 and for 30 June 2023.
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