On 1 July 2020, Table Ltd leased equipment from Chair Ltd. The following are details of the equipment and the lease contract: On 1 July 2020 equipment has a fair value of $110,000 (at fair value in Chair Ltd’s accounts) Lease term is 5 years, useful life of the equipment is 6 years, and Table Ltd will return the equipment at the end of the lease term Lease payments are in advance and will be paid on 1 July of each year, starting 1 July 2020, with $24,000 as the annual payment Residual value of the equipment at the end of the lease term is $8,000, with Table Ltd guaranteeing 75% of the residual value The interest rate implicit in the lease arrangement is 6%. In setting up the lease arrangement Table Ltd incurred costs of $2,354, while Chair Ltd incurred costs of $3,141.
On 1 July 2020, Table Ltd leased equipment from Chair Ltd. The following are details of the equipment and the lease contract:
On 1 July 2020 equipment has a fair value of $110,000 (at fair value in Chair Ltd’s accounts)
Lease term is 5 years, useful life of the equipment is 6 years, and Table Ltd will return the equipment at the end of the lease term
Lease payments are in advance and will be paid on 1 July of each year, starting 1 July 2020, with $24,000 as the annual payment
Residual value of the equipment at the end of the lease term is $8,000, with Table Ltd guaranteeing 75% of the residual value
The interest rate implicit in the lease arrangement is 6%.
In setting up the lease arrangement Table Ltd incurred costs of $2,354, while Chair Ltd incurred costs of $3,141.
Required:
a) Prepare the necessary
b) Calculate interest and
b) Prepare the necessary journal entries for Chair Ltd on 1 July 2020.
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