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(Solved) On 1 July 2013, Emmet, the executive director of the Master Builders Association, entered into a contract with Wyldstyle Ltd to lease special...


On 1 July 2013, Emmet, the executive director of the Master Builders Association, entered into a contract with Wyldstyle Ltd to lease special equipment called a ‘Piece de Resistance’. The equipment had cost Wyldstyle Ltd $40 000 to manufacture and at the inception of the lease had a fair value of $46 904. The equipment will depreciate on a straight line basis and the annual payments include an amount of $1800 for maintenance and insurance. The finance lease agreement, which requires the first payment to be made at inception, contained the following provisions: 

Lease term 3 years

Annual payment, to be paid in advance $15800

Unguaranteed residual value at end of lease term $10000

Expected economic useful life 4 years

Interest rate implicit in the lease  8%

According to the requirements of AASB 117:

  1. a Show calculations for Emmet that support the implicit interest rate in the lease is 8%.
  2. b Prepare a schedule showing the division of the lease rental into interest and principal components. In your answer please clearly date each entry. Marks will be deducted for incorrect or missing dates.
  3. c Prepare general journal entries in the books of the lessee, Emmet, for the years ending 30 June 2014 and 2015. In your answer please clearly date each entry. 

 


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