Reference no: EM133071692
Question - On 1 July 2021, Marcie Ltd leased a building from Sally Ltd. The following are details of the building and the lease contract:
-The building has a fair value of $187,000.
-Lease term is 5 years, useful life of the building is 6 years, and Marcie Ltd will leave the building at the end of the lease term.
-Lease payments are in arrears and will be paid on 30 June of each year, starting 30 June 2022, with $45,000 as the annual payment. Included in the annual payment is $3,000 to reimburse Sally Ltd for payment on the insurance policy.
-Residual value of the building at the end of the lease term is $15,000, with Marcie Ltd guaranteeing $11,000 of the residual value
-The interest rate implicit in the lease arrangement is 6%In setting up the lease arrangement Marcie Ltd incurred $859, while Sally Ltd incurred $1 130.
-Present value of $1 in 5 years at 6% is 0.7473
-Present value of $1 annuity for 4 payments at 6% is 3.4651
-Present value of $1 annuity for 5 payments at 6% is 4.2124
Required -
a) Prepare all the necessary journal entries for Marcie Ltd (lessee) for the financial year 1 July 2021 - 30 June 2022 (PV tables are provided in the answer template)
b) Calculate the balance of the lease receivable on 1 July 2022 for Sally Ltd.