Question
In: Accounting
On 1 January 2015, Finley entered into an agreement to lease a boat. The term of...
On 1 January 2015, Finley entered into an agreement to
lease a boat. The term of the lease was four years. Annual
lease
payments of Rs. 10,000 are payable in advance. The interest rate
implicit in the
lease is 7.5%. Finley is responsible for insuring and maintaining
the boat throughout
the term of the lease. the expected salvage value of the boat is
2000.
Instructions:
(a)Tell whether this is operating or finance lease and give two
reasons. Also determine present value of minimum lease
payments.
(b) prepare lease amortization schedule
(c) prepare depreciation schedule
(d) prepare entries for all years for lessee including deprecaition
entries and dispose off entry.
(e) prepare all entries for lessor
(f) prepare T-accounts for lease liability ans allowance for
depreciation on behalf of lessee
(g) prepare T-account for lease recievable on behalf of
lessor
(h) prepare balance sheet extract for bpth lessor and lessee at
december31st, 2016.
the economic life of the boat is 5 years.
Solutions
Expert Solution
Note: Since in the question the cost of the Boat is not given, I assumed the cost is equal to the Present Value of the Minimum Lease payments discounted at a 7.5% rate = $10000*3.6 = $36,000
Since the PV of the minimum lease payments = Cost of the Boat, the lease can be treated as Finance Lease.
Also given that lig=fe of the boat is 5 years, the lease period is 4 years. Hence more than 75% of the life is covered in the lease. Hence the lease is Finance lease.
Please Please Upvote if you like the answer.
ekkarill92 answered 2 years agoRelated Solutions
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