Sugar Co leased a machine from Spice Co. The terms of the lease are as follows: Inception of lease 1 January 20X1 4 years at $78,864 per annum payable in arrears Lease term Present value of minim. lease payments $250,000 Useful life of asset 4 years Required (a) Calculate the interest rate implicit in the lease, using the table below This table shows the present value of $1 per annum, receivable or payable at the end of each year for n years. Years (n) 1 2 3 4 5 6% 0.943 1.833 2.673 3.465 4.212 Interest rates 8% 0.926 1.783 2.577 3.312 3.993 10% 0.909 1.736 2.487 3.170 3.791 (b) Prepare the extracts from the financial statements of Sugar Co for the year ended 31 December 20X1.

Sugar Co leased a machine from Spice Co. The terms of the lease are as follows: Inception of lease 1 January 20X1 4 years at $78,864 per annum payable in arrears Lease term Present value of minim. lease payments $250,000 Useful life of asset 4 years Required (a) Calculate the interest rate implicit in the lease, using the table below This table shows the present value of $1 per annum, receivable or payable at the end of each year for n years. Years (n) 1 2 3 4 5 6% 0.943 1.833 2.673 3.465 4.212 Interest rates 8% 0.926 1.783 2.577 3.312 3.993 10% 0.909 1.736 2.487 3.170 3.791 (b) Prepare the extracts from the financial statements of Sugar Co for the year ended 31 December 20X1.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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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

Sugar Co leased a machine from Spice Co. The terms of the lease are as follows:
Inception of lease
1 January 20X1
Lease term
4 years at $78,864 per annum payable in arrears
Present value of minim. lease payments $250,000
Useful life of asset
4 years
Required
(a) Calculate the interest rate implicit in the lease, using the table below
This table shows the present value of $1 per annum, receivable or payable at the end of
each year for n years.
Year's
(n)
1
2
3
4
5
6%
0.943
1.833
2.673
3.465
4.212
Interest rates
8%
0.926
1.783
2.577
3.312
3.993
10%
0.909
1.736
2.487
3.170
3.791
(b) Prepare the extracts from the financial statements of Sugar Co for the year ended
31 December 20X1.

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