Question

Indra: Lots. We purchased equipment costing $8,000,000 this year and we are now leasing 3 new forklifts over a 4-year lease term with semi-annual payments on March 1 and September 1 commencing when the company entered the lease on March 1, 20X3. Wayne decided to lease them without my permission, which is one of the reasons he is no longer here. What really upset me about this was that he didn't even try to find out what the interest rate implicit in the lease was. I know that our company can borrow funds at the bank for only 4% to buy forklifts. Luckily when the owner tried to get Wayne to guarantee the residual value of $7,236 for each forklift, he refused, and he also refused to have a purchase option embedded in the lease agreement. I know that the fair value of each forklift is $80,000 and that each payment is $33,200 for all 3 forklifts due every 6 months at the beginning of each six-month period. I also know that forklifts like these should last for 7 years. Thanks, I now have enough information to deal with the lease, but could you tell me about your bank loan? You:
Please do the correct journal entry for the lease.

Answer 1

A B C D E 3 Leased Asset is recognised in the Books of Leasee as follows 5 Higher of Pv of (Minimum Lease Payments +Guaranteed 6 Residual Value 7 Fair Market Value (80000*3) 2,54,365 2,40,000 8 10 Particulars 11 Installments 12 Installments 13 Installments 14 Installments 15 Installments 16 Installments 17 Installments 18 Installments 19 Residuel Value 20 Total 21 22 Assets is recognised in the Books of Lessee 23 Less: First Installment paid on 1st March 2013 24 Lease Liability to be recognised in lessee Books Installments PV @2% DCF 33,200 1.0000 33,200 33,200 0.9804 32,549 33,200 0.9612 31,911 33,200 0.9423 31,285 33,200 0.9238 30,672 33,200 0.9057 30,070 33,200 0.8880 29,481 33,200 0.8706 28,903 2,231 0.8706 6,295 2,54,365 2,54,365 33,200 2,21,165 Sheet1 Sheet2 Sheet3 Sheet4 Sheet4 (2) Ready