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Prepare the journal entries in relation to the lease

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Reference no: EM132768536

Question - ABC Ltd acquired the use of mixer truck under a lease agreement which commences 1 October 2019. The lease contains the following key agreements:

Initial payment: An initial payment of $100,000 to be paid on 1 October 2019

Lease Payments: 2 payments of $170,000 to be paid on 30 September 2020 and 30 September 2021

Transfer of ownership: Ownership of the mixer truck will transfer to ABC Ltd on 30 September 2021 after final payment.

Interest rate: Implicit interest rate is 12%

Additional information:

ABC estimates the trucks useful life is 8 years

Incremental borrowing rate is 14%

Legal costs incurred $10,000 in setting up the lease

Required - Please prepare the journal entries in relation to the lease in the books of ABC Ltd for the year beginning 1 October 2019 to ending 30 September 2020. Narrations are required and show all workings.

Reference no: EM132768536

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