Gerbert Ltd enters into a finance lease with Hokiman Ltd on 1 July 2002 for an item of machinery that has a fair value at that date of $226,718.The lease is for a period of 4 years,with annual lease payments of $62,000 due on 30 June each year,the first payment to be made in 2003.There is a bargain purchase option of $15,000 available for Hokiman to exercise at the end of the lease period.The rate of interest implicit in the lease is 6 per cent.It cost Gerbert Ltd $190,000 to manufacture the machine.What are the entries in the books of Gerbert Ltd for 1 July 2002 and 30 June 2003 (round amounts to the nearest dollar)?
E) None of the given answers.

Question

Quizplus · Accepted Answer

1 July 2002 (Commencement of lease):

Lease receivable: $226,718
Manufacturing cost of machinery: $190,000
Profit on sale of asset: $36,718 (Lease receivable - Manufacturing cost)

Dr Lease Receivable $226,718
Cr Machinery A/c $190,000
Cr Profit and Loss A/c $36,718

30 June 2003 (First annual lease payment):

Interest on lease receivable (6%) = $13,603
Lease receivable (due within one year) = $48,397 ($62,000 - $13,603)

Dr Bank A/c $62,000
Cr Lease Receivable $48,397
Cr Interest Income A/c $13,603

Therefore, the correct answer is B) 11ea7ef8_b34f_76ad_b9ea_4dc20b4afa21_TB3456_00.

Gerbert Ltd Enters into a Finance Lease with Hokiman Ltd