Required 1. Classify the lease for Oceans Ltd and Eleven Ltd. Justify your answer. 2. Prepare (a) the lease payments schedule for Elevens Ltd (show all workings) and (b) the journal entries in its books for the year ended 30 June 2021.
Lease classification, accounting by lessor
Oceans Ltd manufactures specialised moulding machinery for both sale and lease. On 1 July 2020, Oceans Ltd leased a machine to Eleven Ltd. The machine being leased cost Oceans Ltd $195 000 to make and its fair value at 1 July 2020 is considered to be $212 515. The terms of the lease are as follows.
Lease term 5years starting on 1July 2020
Annual lease payment on 30 June each year $50,000
Estimated useful life 8 years
Estimated residual value at end of lease term $37,000
Residual value guaranteed by Eleven $25,000
Interest rate implicit in lease 10%
Eleven may cancel lease with permission of lessor
Required
1. Classify the lease for Oceans Ltd and Eleven Ltd. Justify your answer.
2. Prepare (a) the lease payments schedule for Elevens Ltd (show all workings) and (b) the
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