On 1 July 2019, Success Ltd entered a contract to lease specialised machinery for its business. The lease contract requires Success Ltd to make eight annual lease payments of $130,000, commencing on 30 June 2020. Included within the $130,000 annual lease payments is an amount of $30,000 for the insurance and maintenance of the machinery. The lease contract also includes a purchase option, which Success Ltd expects to exercise, to purchase the machinery for $140,000 at the end of the lease contract. Upon entering the lease contract, on 1 July 2019, Success Ltd incurred initial direct costs of $20,000 for legal fees and taxes. The machinery has an expected useful life of 10 years, after which it will have a scrap value of $10,000. The implicit interest rate in the lease contract is 9% per annum. The relevant present values are: Interest Rate 9% REQUIRED: Present Value of $1 in 8 years 0.5019 Present Value of $1 in 10 years 0.4224 Present Value of an annuity of $1 for 8 years 5.5348 Present Value of an annuity of $1 for 10 years 6.4177 a. Provide the journal entries for Success Ltd relating to the lease contract for the financial year ending 30 June 2019 and 30 June 2020, in accordance with AASB16: Leases.
On 1 July 2019, Success Ltd entered a contract to lease specialised machinery for its business. The lease contract requires Success Ltd to make eight annual lease payments of $130,000, commencing on 30 June 2020. Included within the $130,000 annual lease payments is an amount of $30,000 for the insurance and maintenance of the machinery. The lease contract also includes a purchase option, which Success Ltd expects to exercise, to purchase the machinery for $140,000 at the end of the lease contract. Upon entering the lease contract, on 1 July 2019, Success Ltd incurred initial direct costs of $20,000 for legal fees and taxes. The machinery has an expected useful life of 10 years, after which it will have a scrap value of $10,000. The implicit interest rate in the lease contract is 9% per annum. The relevant present values are: Interest Rate 9% REQUIRED: Present Value of $1 in 8 years 0.5019 Present Value of $1 in 10 years 0.4224 Present Value of an annuity of $1 for 8 years 5.5348 Present Value of an annuity of $1 for 10 years 6.4177 a. Provide the journal entries for Success Ltd relating to the lease contract for the financial year ending 30 June 2019 and 30 June 2020, in accordance with AASB16: Leases.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:On 1 July 2019, Success Ltd entered a contract to lease specialised machinery for its business. The lease contract requires Success Ltd to make eight annual lease payments of
$130,000, commencing on 30 June 2020. Included within the $130,000 annual lease payments is an amount of $30,000 for the insurance and maintenance of the machinery.
The lease contract also includes a purchase option, which Success Ltd expects to exercise, to purchase the machinery for $140,000 at the end of the lease contract.
Upon entering the lease contract, on 1 July 2019, Success Ltd incurred initial direct costs of $20,000 for legal fees and taxes.
The machinery has an expected useful life of 10 years, after which it will have a scrap value of $10,000.
The implicit interest rate in the lease contract is 9% per annum. The relevant present values are:
Interest
Rate
9%
REQUIRED:
Present Value of
$1 in 8 years
0.5019
Present Value of
$1 in 10 years
0.4224
Present Value of
an annuity of $1
for 8 years
5.5348
Present Value
of an annuity
of $1 for 10
years
6.4177
a. Provide the journal entries for Success Ltd relating to the lease contract for the financial year ending 30 June 2019 and 30 June 2020, in accordance with AASB16: Leases.
AI-Generated Solution
AI-generated content may present inaccurate or offensive content that does not represent bartleby’s views.
Unlock instant AI solutions
Tap the button
to generate a solution
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education