Answer Happy

On 1 July 2021, Melbourne Ltd leased a building from Sydney Ltd. The following are details of the building and the lease contract: • The building has a fair value of $207 870. • Lease term is 5 years, useful life of the building is 6 years, and Melbourne Ltd will leave the building at the end of the lease term. • Lease payments are in arrears and will be paid on 30 June of each year, starting 30 June 2022, with $50,000 as the annual payment. Included in the annual payment is $2,000 to reimburse Sydney Ltd for payment on the insurance policy. Residual value of the building at the end of the lease term is $16,000, with Melbourne Ltd guaranteeing $12,000 of the residual value The interest rate implicit in the lease arrangement is 6% In setting up the lease arrangement Melbourne Ltd incurred $4,707, while Sydney Ltd incurred $6,282. Required: a) Prepare all the necessary journal entries for Melbourne Ltd (lessee) for the financial year 1 July 2021 - 30 June 2022 b) Calculate the balance of the lease receivable on 1 July 2022 for Sydney Ltd.