FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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- JK Ltd enters into a non-cancellable five-year lease agreement with Burt Ltd on 1 July 2019. 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 JK 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 2020. Included with $175,000 lease payments is an amount of $17,500 representing payment to the lessor for the insurance maintenance of the equipment. The equipment is to be depreciated on a straight-line basis. 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 JK Ltd for the years ending 30 June 2020 and 30 June 2021. c. Prepare the portion of the statement…arrow_forwardOn January 1, 2021, Maroon Company entered into a five-year nonrenewable operating lease, commencing on that date, for office space. The office space has a useful life of 50 years and the lease specifies a rent of P20,000 per month. The lessor grants nine months of free rent, how much is the rent income in 2021?arrow_forwardTurner Company signs a lease agreement on January 1, 2024, to lease equipment to Holmgren Company. The term of the non-cancelable lease is 5 years, and annual payments are required at the beginning of each year. The following information relates to this agreement. -Holmgren has the option to purchase the equipment for $11,000 upon termination of the lease. It is reasonably certain that Holmgren will exercise this option (i.e. it is a bargain purchase). - The equipment has a cost of $118,000 and fair value of $186,000 to Turner. Its useful economic life is 10 years. What annual rental amount will Williamson charge if it desires to earn a return of 7% on its investment?arrow_forward
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