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Prepare lease amortization schedule for Ipswich Equipment

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Question - On 1st January 2020, Toowoomba Leasing (TL) leased high-tech electronic equipment to Ipswich Equipment (IE). TL is not a manufacturer or retailer of these goods. TL purchased the equipment from International Machines at a fair value (which is the present value of the cash payments calculated based on the information provided below). The machine will be returned to TL at the end of the lease term. The other related information is given below:

Lease term 2 years (8 quarter)

Quarterly rental payments $3,000-beginning of each period

Economic life of asset 2 years

Implicit interest rate 8% per annum

(Also lessee's incremental borrowing rate)

End of financial year 30 June each year (both companies)

Required -

(a) What is the fair value of the machine if present value is used as basis?

(b) Prepare the lease amortization schedule for Ipswich Equipment in the table provided below for the first four payments.

(c) If Ipswich Equipment uses straight line method of depreciation, what is the depreciation expense of the equipment for the year ended 30 June 2020? Clearly show your calculation.

(d) Provide the journal entries for Ipswich Equipment for the period 1 Jan 2020 to 30 June 2020.

Reference no: EM133051687

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