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Prepare the journal entries related to the lease agreement

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Reference no: EM132884438

Problem - COE Limited is a lessee and has entered into a non-cancellable lease agreement for an equipment on 1 January 2020. The following data is relevant:

1. The lease term is 6 years. Lease payments is $700,000 per annum, payable on 1 January of each year, with the first payment on 1 January 2020.

2. The equipment has a useful life of 8 years with no residual value.

3. COE Limited depreciates similar equipment on a straight-line basis.

4. The interest rate implicit in the lease is 5% per annum.

Required -

a. Calculate the present value of the lease payments on 1 January 2020.

b. Prepare the journal entries related to the lease agreement in 2020.

Reference no: EM132884438

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