On 1 July 2020, Sherlock Ltd leased a processing plant to Holmes Ltd. The plant was purchased by Sherlock Ltd on 1 July 2020 for its fair value of $439,085. The lease agreement contained the following provisions. Lease term 3 years Economic life of plant 5 years Annual rental payment, in arrears (commencing 30/6/2021) $141,000 Residual value at end of the lease term $85,000 Residual guaranteed by lessee $56,000 Interest rate implicit in lease 7% The lease is cancellable only with the permission of the lessor. Holmes Ltd intends to return the processing plant to the lessor at the end of the lease term. The lease has been classified as a finance lease by both the lessee and the lessor. 1. (a) Prepare the lease payment schedule for the lessee. (Round factor values to 4 decimal places, e.g. 5,2752 and final answers to O decimal places, e.g. 5,275.) Holmes Ltd (lessee) Lease payments schedule Minimum Liability reduction lease Interest Liability balance payments expense July 2020 30 June 2021 30 June 2022 30 June 2023 "Note: The total of this column must equal the initial liability balance, which may require rounding the final interest revenue figure.

On 1 July 2020, Sherlock Ltd leased a processing plant to Holmes Ltd. The plant was purchased by Sherlock Ltd on 1 July 2020 for its fair value of $439,085. The lease agreement contained the following provisions. Lease term 3 years Economic life of plant 5 years Annual rental payment, in arrears (commencing 30/6/2021) $141,000 Residual value at end of the lease term $85,000 Residual guaranteed by lessee $56,000 Interest rate implicit in lease 7% The lease is cancellable only with the permission of the lessor. Holmes Ltd intends to return the processing plant to the lessor at the end of the lease term. The lease has been classified as a finance lease by both the lessee and the lessor. 1. (a) Prepare the lease payment schedule for the lessee. (Round factor values to 4 decimal places, e.g. 5,2752 and final answers to O decimal places, e.g. 5,275.) Holmes Ltd (lessee) Lease payments schedule Minimum Liability reduction lease Interest Liability balance payments expense July 2020 30 June 2021 30 June 2022 30 June 2023 "Note: The total of this column must equal the initial liability balance, which may require rounding the final interest revenue figure.

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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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

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On 1 July 2020, Sherlock Ltd leased a processing plant to Holmes Ltd. The plant was purchased by Sherlock Ltd on 1 July 2020 for its
fair value of $439,085. The lease agreement contained the following provisions.
Lease term
З уears
Economic life of plant
5 years
Annual rental payment, in arrears (commencing 30/6/2021)
$141,000
Residual value at end of the lease term
$85,000
Residual guaranteed by lessee
$56,000
Interest rate implicit in lease
7%
The lease is cancellable only with the permission of the lessor.
Holmes Ltd intends to return the processing plant to the lessor at the end of the lease term. The lease has been classified as a finance
lease by both the lessee and the lessor.
1. (a)
Prepare the lease payment schedule for the lessee. (Round factor values to 4 decimal places, eg. 5,2752 and final answers to O
decimal places, eg. 5,275.)
Holmes Ltd (lessee)
Lease payments schedule
Minimum
lease
Interest
Liability
reduction
Liability
balance
payments
expense
1
July
2020
30
June
2021
30
June
2022
30
June
2023
"Note : The total of this column must equal the initial liability balance, which may require rounding the final interest revenue
figure.
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