Cheyanne Ltd has decided to lease a photocopier from Derek
Ltd (a manufacturer company) over a 4 year lease period from 1 July 2013 to 30 June 2017. Derek Ltd had manufactured the copier? at a cost of $27,000. The economic life of the asset is 5 years.
The terms of the lease are: $20,000 per annum over the 4 years with the first lease payment payable on 1 July 2013 and all remaining payments will be made at the end of each financial year. Residual value guaranteed by Cheyanne Ltd is $4,000. Estimated residual value when the photocopier is returned to Derek Ltd is $9,000. The interest rate implicit in the lease contract is 15%.
At the end of the lease, Cheyanne Ltd returns the photocopier to Derek Ltd. Assume that the lease meets the requirements of a finance lease.
- 1. Set out Derek Ltd?s schedule of receipts and Cheyanne Ltd?s schedule of payments for the lease period.
- 2. Record the journal entries in the books of Derek Ltd at 1 July, 2013 and for the year ending 30 June 2014.
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