Subject: Advance finance accountingRequired:a) Determine the present value of minimum lease rental payment. b) Prepare the journal entries for FRM Ltd (the Lessee) using the Net Method for the following;i. Transfer of controlii. Payment of annual payments for 2015 and 2016. FRM Ltd acquired an item of equipment and enters into a non-cancellable lease agreement with FENEquipment Ltd on 1 January 2015. The lease consists of the following:Date of inception:Duration of lease:1/1/154 years5 years$550 000 (annual) which includes $80 000 forMaintenance and insurance costs per annum.• Life of leased asset:• Lease payments (annual):Guaranteed residual value(Added to final payment):• Interest rate:$190 0007%Formula for PV of $1 in n periods =1/(1+k)^1-1/(1+k)*Formula for present value of annuity of $1 per period for n periods = -kwhere, k is the discount rate expressed in decimal

a. Calculate the present value MLP. Thus, the PV of MLP is $2,148,470 (approx.).

Answered: FRM Ltd acquired an item of equipment…

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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Subject: Advance finance accounting

Required:
a) Determine the present value of minimum lease rental payment.
b) Prepare the journal entries for FRM Ltd (the Lessee) using the Net Method for the following;

i. Transfer of control
ii. Payment of annual payments for 2015 and 2016.

FRM Ltd acquired an item of equipment and enters into a non-cancellable lease agreement with FEN
Equipment Ltd on 1 January 2015. The lease consists of the following:
Date of inception:
Duration of lease:
1/1/15
4 years
5 years
$550 000 (annual) which includes $80 000 for
Maintenance and insurance costs per annum.
• Life of leased asset:
• Lease payments (annual):
Guaranteed residual value
(Added to final payment):
• Interest rate:
$190 000
7%
Formula for PV of $1 in n periods =1/(1+k)^
1-1/(1+k)*
Formula for present value of annuity of $1 per period for n periods = -
k
where, k is the discount rate expressed in decimal

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