Sliver Limited Leases An Equipment From Tesco Limited Under The Following Lease Terms The Lease Term Is 4 Years Non Ca 1 (90.33 KiB) Viewed 33 times
Sliver Limited leases an equipment from Tesco Limited under the following lease terms. The lease term is 4 years, non-cancelable and requires equal annual rental payments at the beginning of each calendar year starting 1 January 2021. Tesco Limited wants a guarantee that the residual value of the equipment at the end of the lease is at least $26,000. Sliver Limited agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only $10,000 at the end of the lease term. The cost of an equipment is $230,000 and the fair value of the equipment is $350,000 on 1 January 2021. The equipment has an economic life of 5 years. Both companies depreciate all their equipment on a straight-line basis. Tesco Limited wants to earn a return of 6% on the lease and collectability of the payment is probable. Sliver Limited's incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown.
(c) Prepare all journal entries for the year ended 31 December 2021 in the books of the lessor. (8 marks)
Join a community of subject matter experts. Register for FREE to view solutions, replies, and use search function. Request answer by replying!