Due date: 19 October 2009
Value: 10% of total assessment

Question 1

Summer Ltd entered into an agreement on 1 July 2010 to lease a harvester with a fair value of $34 797 from Field Ltd. The lease agreement details are as follows:

Length of lease 5 years
Annual lease payment $8 000
Estimated useful life of harvester 8 years
Estimated residual at end of useful life $2 000
Residual at end of lease term (50% guaranteed) $7 200
Interest rate implicit in the lease 9%

Additional information:

• Lease payments are payable on 30 June each year, with the first payment on 30 June 2011

• The lease is cancellable, but a penalty equal to 50% of the total lease payments is payable on cancellation.

• Summer Ltd does not intend to purchase the harvester at the end of the lease term.

• Field Ltd incurred costs of $1 000 to negotiate and execute the lease agreement.

• Field Ltd purchased the harvester for $34 797 just before the inception of the lease.

Required

• State how both companies should classify the lease. Give reasons for your answer.
•
• Prepare a schedule of lease payments for Summer Ltd.
•
• Prepare a schedule of lease payments for Field Ltd.

• Prepare journal entires to record the lease transactions for the year ended 30 June 2011 in the accounts of Summer Ltd.

• Prepare journal entires to record the lease transactions for the year ended 30 June 2011 in the accounts for Field Ltd.

See other post. We don't just do homework for people. We need to see your attempts at doing it first, or ask something specific about what you don't get. The guidelines for homework are at the top of the forum in red.

You in ACC222@Csu? Lol