Reference no: EM132668677

Venus Ltd has entered into an agreement to lease a D9 bulldozer to Mars Ltd. The lease agreement details are as follows:

• Length of lease5 years
• Commencement date1 July 2010
• Annual lease payment, payable 30 June each year commencing 30 June 2011, $8 000
• Fair value of the bulldozer at 1 July 2010$34 797
• Estimated economic life of the bulldozer8 years
• Estimated residual value of the plant at the end of its economic life$2 000
• Residual value at the end of the lease term, of which 50% is guaranteed by Mars Ltd, 7 200
• Interest rate implicit in the lease9%The lease is cancellable, but a penalty equal to 50% of the total lease payments is payable on cancellation.

Mars Ltd does not intend to buy the bulldozer at the end of the lease term.Venus Ltd incurred $1 000 to negotiate and execute the lease agreement.Venus Ltd purchased the bulldozer for $34 797 just before the inception of the lease.

Required:

Problem A. State how both companies should classify the lease. Give reasons for your answer.

Problem B. Provide schedule of lease payments for Mars Ltd.

Problem C. Provide a schedule of lease receipts for Venus Ltd.

Problem D. Prepare journal entries to record the lease transactions for the year ended 30 June 2011 in the record of both companies.