Parramatta Flying Cars Ltd leased a flying car from an aircraft dealer, Sydney Aircraft Ltd. Sydney Aircraft Ltd acquired the flying car at a cost of $172,000. The flying car will be painted with Parramatta Flying Car Ltd's logo and advertising and the cost of repainting the flying car to make it suitable for another owner four years later is estimated to be $32,000. Parramatta Flying Cars Ltd plans to keep the flying car after the lease but has not made any commitment to the lessor to purchase it. The terms of the lease are as follows: • Date entering lease: 1 July 2023 Duration of lease: 4 years Life of leased asset: 5 years, after which it will have no residue value • Lease payment: $92,000 at the end of each year • The interest rate implicit in the lease: 10 percent Unguaranteed residue: $42,000 • The fair value of the flying car at the inception of the lease: $320,317 Required: On 30 June 2027, Parramatta Flying Cars pays the residue of $42,000 and purchased the flying car. Prepare all journal entries in the books of Parramatta Flying Cars Ltd for 30 June 2027 in relation to the termination of the lease and the purchase of the flying car. (Could you kindly explain how you calculate your numbers as well, many thanks)

Business Its Legal Ethical & Global Environment

10th Edition

ISBN:9781305224414

Author:JENNINGS

Publisher:JENNINGS

Chapter12: Contracts And Sales:introduction And Formation

Section: Chapter Questions

Problem 10QAP

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Transcribed Image Text:Parramatta Flying Cars Ltd leased a flying car from an aircraft dealer, Sydney Aircraft Ltd. Sydney Aircraft Ltd acquired the flying car at a cost of $172,000. The flying car will be painted with Parramatta Flying Car Ltd's logo and advertising and the cost of repainting the flying car to make it suitable for another owner four years later is estimated to be $32,000. Parramatta Flying Cars Ltd plans to keep the flying car after the lease but has not made any commitment to the lessor to purchase it. The terms of the lease are as follows: • Date entering lease: 1 July 2023 • Duration of lease: 4 years • Life of leased asset: 5 years, after which it will have no residue value Lease payment: $92,000 at the end of each year The interest rate implicit in the lease: 10 percent • Unguaranteed residue: $42,000 • The fair value of the flying car at the inception of the lease: $320,317 Required: On 30 June 2027, Parramatta Flying Cars pays the residue of $42,000 and purchased the flying car. Prepare all journal entries in the books of Parramatta Flying Cars Ltd for 30 June 2027 in relation to the termination of the lease and the purchase of the flying car. (Could you kindly explain how you calculate your numbers as well, many thanks)

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