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Prepare the lease payments schedule for the true ltd

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Reference no: EM132408378

Accounting by lessee

On 1 July 2019, True Ltd leased a plastic-moulding machine from Grit Ltd. The machine cost Grit Led $130 000 to manufacture and had a fair value of $154 109 on 1 July 2019. The lease agreement contained the following provisions.

Lease term 4 years

Annual rental payment, in advance on 1 July each year $41 500

Residual value at end of the lease term $15 000

Residual guaranteed by lessee nil

Interest rate implicit in lease 8%

The lease is cancellable only with the permission of the lessor.

The expected useful life of the machine is 6 years. True Ltd intends to return the machine to the Grit Ltd at the end of the lease term. Included in the annual rental payment is an amount of $1500 to cover the costs of maintenance and insurance paid for by the lessor.

Required

1. Prepare the lease payments schedule for the True Ltd (show all workings).

2. Prepare the journal entries in the books of True Ltd for the year ended 30 June 2020.

Reference no: EM132408378

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