Question - On 1 July 2010, Cherry Ltd acquired an item of plant for $31 864. On the same date, Cherry Ltd entered into a lease agreement with Hazel Ltd in relation to the assets. According to the lease agreement, Hazel Ltd agreed to pay $ 12 000 immediately, with a further two payments of $ 12 000 on 1 July 2011 and 1 July 2012.
At 30 June 2013, the asset is to be returned to the lessor and its residual value is expected to be $ 6000. Hazel Ltd has agreed to guarantee the expected residual value at 30 June 2013. All insurance and maintenance cost are to be paid by Cherry Ltd and are expected to amount to $ 2000 p.a. The cost of preparing the lease agreement amounted to @360. The interest rate implicit in the lease is 9%. The lease is classified as a finance lease. Plant is depreciable on a straight line basis.
Required - Prepare a schedule of lease receipts for Cherry Ltd and the journal entries for the year ended 30 June 2011.