contracts to lease equipment

PROBLEMS

Leases

1. On 1 July 2013, Tasman Ltd contracts to lease equipment for five years at an annual rental of $20 000 with the first payment payable immediately. The equipment could have been purchased from the supplier for $80 747. The rate of interest implicit in the lease is 12% and the end of the reporting period is 30 June.

Required

(a) Prepare general journal entries for the year ended 30 June 2014, assuming the lease is an operating lease.

(b) Prepare general journal entries for the year ended 30 June 2014, assuming the lease is a finance lease.

(c) Prepare a schedule showing the division of the lease rental into interest and principal components for the first two years.