Lease:
London Ltd leases a motor vehicle from New York Ltd on 30 June 20x4. New York Ltd is financial lessor. The details of the lease arrangement are as follows.
- The lease term is three years
- The lease is cancellable, but the cancellation penalty is $30,000.
- The annual payment is $15,500 including an amount of $1500 to cover the maintenance and insurance costs paid for by New York Ltd, on behalf of London Ltd.
- Negotiation costs of $1000 were incurred by London Ltd at the inception of the lease arrangement.
- Payments are made annually on 30 June, commencing on 30 June 20x4.
- The residual value of the motor vehicle at the end of the lease term is $10,000. London Ltd guarantee 80% of the residual.
- The implicit interest rate in the lease is 6%
- The vehicle has an expected useful life of four years.
- At the end of the lease term, the vehicle was returned to New York Ltd.
- Lease arrangement costs of $600 were incurred by New York Ltd.
Required:
Prepare the schedule of lease payments for London Ltd and show the journal entries for the lease for the year ended 30 June 20x5.