PV tables are needed Tea Tree Ltd enters into a non-cancellable five-year lease agreement with Top Machines Ltd on 1July 2020. The lease is for an item of machinery that, at the inception of the lease, has a fair valueof $647,192.The machinery is expected to have an economic life of six years, after which time it will have anexpected residual value of $105,000. There is a bargain purchase option that Tea Tree Ltd will beable to exercise at the end of the fifth year for $140,000.There are to be five annual payments of $175,000, the first being made on 30 June 2021. Includedwithin the $175,000 lease payments is an amount of $17,500 representing payment to the lessor forthe insurance and maintenance of the equipment. The equipment is to be depreciated on a straight-line basis.REQUIRED: SHOW ALL WORKINGSa)Determine the rate of interest implicit in the lease and calculate the present value ofthe lease payments.b)Prepare the journal entries in the books of Tea Tree Ltd for the years ending 30 June2021 and 30 June 2022.Prepare the portion of the statement of financial position for the year ending 30 June2022 relating to the lease asset and lease liability.c)

Given: To prepare the rate of interest, journal entries of the Tea Tree Ltd and the financial…

Answered: V tables are needed

Business

Accounting

V tables are needed

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

PV tables are needed

Tea Tree Ltd enters into a non-cancellable five-year lease agreement with Top Machines Ltd on 1
July 2020. The lease is for an item of machinery that, at the inception of the lease, has a fair value
of $647,192.
The machinery is expected to have an economic life of six years, after which time it will have an
expected residual value of $105,000. There is a bargain purchase option that Tea Tree Ltd will be
able to exercise at the end of the fifth year for $140,000.
There are to be five annual payments of $175,000, the first being made on 30 June 2021. Included
within the $175,000 lease payments is an amount of $17,500 representing payment to the lessor for
the insurance and maintenance of the equipment. The equipment is to be depreciated on a straight-
line basis.
REQUIRED: SHOW ALL WORKINGS
a)
Determine the rate of interest implicit in the lease and calculate the present value of
the lease payments.
b)
Prepare the journal entries in the books of Tea Tree Ltd for the years ending 30 June
2021 and 30 June 2022.
Prepare the portion of the statement of financial position for the year ending 30 June
2022 relating to the lease asset and lease liability.
c)

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