Due to increased demand for local deliveries in Western Sydney, Metro Deliveries Ltd leased a truck from a truck dealer, Parramatta Trucks Ltd. Parramatta Trucks acquired the truck at the cost of $181,000. The truck will be painted with Metro Deliveries Ltd's logo and advertising, and the cost of repainting the truck to make suitable for another owner four years later is estimated to be $41,000. Metro Deliveries has not made any commitment to the lessor to purchase it, but they plan to ke the truck after the lease. The terms of the lease are as follows: . Date of entering lease. 1 July 2023. . Duration of lease: 4 years. . Life of leased asset: 5 years, after which it will have no residual value. . Lease payments: $101,000 at the end of each year. . The interest rate implicit in the lease: 10 per cent. . Unguaranteed residual: $51,000. Fair Value of truck at the inception of the lease: $354,993. . EQUIRED 1. Prepare the journal entries to account for the lease transaction in the books of the lessor, Parramatta Trucks, at 1 July 2023 and 30 June 2024 2. Prepare the journal entries to account for the lease transaction in the books of the lessee, Metro Deliveries Ltd, at 1 July 2023 and 30 June 2024 3. On 30 June 2027, Metro Deliveries pays the residual of $51,000 and purchases the truck. Prepare all journal entries in the books of Metro Deliveries for 30 2027 in relation to the termination of the lease and the purchase of the truck.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Transcribed Image Text:Due to increased demand for local deliveries in Western Sydney, Metro Deliveries Ltd leased a truck from a truck dealer, Parramatta Trucks Ltd. Parramatta Trucks Lid acquired the truck at the cost of $181,000. The truck will be painted with Metro Deliveries Ltd's logo and advertising, and the cost of repainting the truck to make suitable for another owner four years later is estimated to be $41,000. Metro Deliveries has not made any commitment to the lessor to purchase it, but they plan to keep the truck after the lease. The terms of the lease are as follows: . Date of entering lease: 1 July 2023. . Duration of lease: 4 years. . Life of leased asset: 5 years, after which it will have no residual value. • Lease payments: $101,000 at the end of each year. . The interest rate implicit in the lease: 10 per cent. . Unguaranteed residual: $51,000. . Fair Value of truck at the inception of the lease: $354,993. REQUIRED 1. Prepare the journal entries to account for the lease transaction in the books of the lessor, Parramatta Trucks, at 1 July 2023 and 30 June 2024 2. Prepare the journal entries to account for the lease transaction in the books of the lessee, Metro Deliveries Ltd, at 1 July 2023 and 30 June 2024 3. On 30 June 2027, Metro Deliveries pays the residual of $51,000 and purchases the truck. Prepare all journal entries in the books of Metro Deliveries for 30 2027 in relation to the termination of the lease and the purchase of the truck.

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