[15 marks]Lease classification and accounting(Leo et al 2009 Question 6.13)On 1 July 2010, Purple Ltd entered into an agreement to lease a bulldozer to Lemon Ltd. The leaseagreement contained the following provisions:Lease term 5 yearsEstimated useful life of bulldozer 8 yearsAnnual lease payment, payable on 30 June each year $8,000Fair value of bulldozer at 1 July 2010 $34,747Estimated residual value of bulldozer at end of its useful life $2,000Residual value at the end of the lease term, of which 50% isguaranteed by Lemon Ltd$7,200Interest rate implicit in lease 9%The lease is cancellable, but a penalty equal to 50% of the total lease payments is payable oncancellation. Lemon Ltd does not intend to buy the bulldozer at the end of the lease term.Purple Ltd incurred $1,000 to negotiate and execute the lease agreement. Purple Ltd purchased thebulldozer for $34,797 just before the inception of the lease.Required:(a) State how both companies should classify the lease. Give reasons for your answer.(b) Prepare a schedule of lease payments for Lemon Ltd.(c) Prepare a schedule of lease receipts for Purple Ltd.(d) Prepare journal entries to record the lease transactions for the year ended 30 June 2011 in therecords of both companies.Note: round all figures to the nearest dollar, and leave all percentages with one decimal place.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more