(b) Happy Limited leased a machine directly from Great Machinery (the manufactur

Question

(b) Happy Limited leased a machine directly from Great Machinery (the manufacturer) on 1 January 2017. The details of the lease agreement are shown as below: Lease term Payment Useful life of the machine e to Implicit interest rate 14% The contract specified that ownership is transferable to the lessee at the end of the lease. Depreciation follows a straigh-line patermthnsidual value Required: (Answers should be rounded to the nearest dollar.) (i) Compute the present value of the minimum lease payment (MLP). (ii) Prepare all necessary journal entries for Great Machinery, from the inception of the lease (2 marks) through the second lease payment on 1 July 2017. (8 marks)

Explanation / Answer

Period amount PVF PV 1    20,000.00          1.00          20,000.00 2    20,000.00          0.93          18,691.59 3    20,000.00          0.87          17,468.77 4    20,000.00          0.82          16,325.96 5    20,000.00          0.76          15,257.90 6    20,000.00          0.71          14,259.72 Minimum Lease Payment       102,003.95 (b) 01/01/2017 Lease Receivables       102,004.00 to Assets      102,004.00 01/01/2017 Cash         20,000.00 to Lease Receivables         20,000.00 01/07/2017 Cash         20,000.00 to Lease Receivables         14,260.00 to Finance Income           5,740.00 (102004-20000)*.07

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