On 1 July 2023, Ringwood Ltd entered into a non-cancellable lease contract to lease office equipment from Blackburn Ltd for six years. The lease contract requires Ringwood Ltd to make half-yearly lease payments of $150,000 for 6 years, on 30 June and 31 December, each year, commencing on 31 December 2023. Included within the $150,000 half-yearly lease payments, is an amount of $20,000 representing payment to Blackburn Ltd for the insurance and maintenance of the equipment. Ringwood Ltd paid $15,000 for initial direct cost associated with the lease contract. The lease contract provides that Ringwood Ltd fully guarantees the residual value of the equipment, $220,000. The office equipment will be transferred to Ringwood Ltd when this payment is made. The interest rate implicit in the lease contract is 6% per annum. Blackburn Ltd manufactured the office equipment leased to Ringwood Ltd, at a cost of $1,000,000. The equipment is expected to have a useful life of 7 years, after which time it is expected to have a residual value of $80,000. The equipment will be depreciated on a straight-line basis. * Present value factors: PV of an ordinary annuity of $1 Interest rate Periods 12 6 6% 8.3838 4.9173 3% 9.9540 5.4172 Interest rate Periods 12 6 PV of $1 6% 0.4970 0.7050 3% 0.7014 0.8375 Requirements (rounded to the nearest dollar): Assuming the above contract contains a lease in accordance with AASB16 Leases, a) calculate, by showing the workings, the lease liability and lease asset for Ringwood Ltd; b) prepare a full lease schedule for Ringwood Ltd., showing the division of the lease rental into interest and principal components; and c) Provide the journal entries for the lease transactions in the books of Ringwood Ltd for the financial year ending 30 June 2024 (from 1 July 2023 to 30 June 2024). Narrations are not required.
On 1 July 2023, Ringwood Ltd entered into a non-cancellable lease contract to lease office equipment from Blackburn Ltd for six years. The lease contract requires Ringwood Ltd to make half-yearly lease payments of $150,000 for 6 years, on 30 June and 31 December, each year, commencing on 31 December 2023. Included within the $150,000 half-yearly lease payments, is an amount of $20,000 representing payment to Blackburn Ltd for the insurance and maintenance of the equipment. Ringwood Ltd paid $15,000 for initial direct cost associated with the lease contract. The lease contract provides that Ringwood Ltd fully guarantees the residual value of the equipment, $220,000. The office equipment will be transferred to Ringwood Ltd when this payment is made. The interest rate implicit in the lease contract is 6% per annum. Blackburn Ltd manufactured the office equipment leased to Ringwood Ltd, at a cost of $1,000,000. The equipment is expected to have a useful life of 7 years, after which time it is expected to have a residual value of $80,000. The equipment will be depreciated on a straight-line basis. * Present value factors: PV of an ordinary annuity of $1 Interest rate Periods 12 6 6% 8.3838 4.9173 3% 9.9540 5.4172 Interest rate Periods 12 6 PV of $1 6% 0.4970 0.7050 3% 0.7014 0.8375 Requirements (rounded to the nearest dollar): Assuming the above contract contains a lease in accordance with AASB16 Leases, a) calculate, by showing the workings, the lease liability and lease asset for Ringwood Ltd; b) prepare a full lease schedule for Ringwood Ltd., showing the division of the lease rental into interest and principal components; and c) Provide the journal entries for the lease transactions in the books of Ringwood Ltd for the financial year ending 30 June 2024 (from 1 July 2023 to 30 June 2024). Narrations are not required.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On 1 July 2023, Ringwood Ltd entered into a non-cancellable lease contract to lease office equipment from
Blackburn Ltd for six years. The lease contract requires Ringwood Ltd to make half-yearly lease payments of
$150,000 for 6 years, on 30 June and 31 December, each year, commencing on 31 December 2023. Included
within the $150,000 half-yearly lease payments, is an amount of $20,000 representing payment to Blackburn
Ltd for the insurance and maintenance of the equipment. Ringwood Ltd paid $15,000 for initial direct cost
associated with the lease contract. The lease contract provides that Ringwood Ltd fully guarantees the residual
value of the equipment, $220,000. The office equipment will be transferred to Ringwood Ltd when this payment
is made. The interest rate implicit in the lease contract is 6% per annum. Blackburn Ltd manufactured the office
equipment leased to Ringwood Ltd, at a cost of $1,000,000. The equipment is expected to have a useful life of
7 years, after which time it is expected to have a residual value of $80,000. The equipment will be depreciated
on a straight-line basis.
* Present value factors:
PV of an ordinary annuity of $1
Interest rate
Periods
12
6
6%
8.3838
4.9173
3%
9.9540
5.4172
Interest rate
T
Periods
12
6
PV of $1
6%
0.4970
0.7050
3%
0.7014
0.8375
Requirements (rounded to the nearest dollar):
Assuming the above contract contains a lease in accordance with AASB16 Leases,
a) calculate, by showing the workings, the lease liability and lease asset for Ringwood Ltd;
b) prepare a full lease schedule for Ringwood Ltd., showing the division of the lease rental into
interest and principal components; and
c) Provide the journal entries for the lease transactions in the books of Ringwood Ltd for the financial year
ending 30 June 2024 (from 1 July 2023 to 30 June 2024). Narrations are not required.
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