On July 1, 2023, Air West Coas
On July 1, 2023, Air West Coast Ltd decided to lease an aircraftfrom Dubai Aerospace Enterprise, an enormous conglomerate in theaircraft leasing space who purchased the aircraft for cash. Theterm of the lease is 20 years. The implicit interest rate in thelease is 10 per cent. It is expected that the aircraft will bescrapped at the end of the lease term. The fair value of theaircraft at the commencement of the lease is $2,428,400. The leaseis non-cancellable, Air West Coast Ltd returns the aircraft toDubai Aerospace Enterprise at the end of the lease, Dubai AerospaceEnterprise requires a lease payment of $300,000 on the inception ofthe lease on July 1, 2023, and lease payments of $250,000 on June30 each year, starting on June 30, 2024. There is no residualpayment required.
Required
- Provide the journal entries for the lease in the books of AirWest Coast Ltd as at July 1, 2023.
- Provide the journal entries for the lease in the books of DubaiAerospace Enterprise as at July 1, 2023.
- Provide the journal entries in the books of Air West Coast Ltdin the final year of the lease, i.e., in 20 years.
- Provide the journal entries in the books of Dubai AerospaceEnterprise for the final year of the lease, i.e., in 20 years.
- Provide the journal entries for the lease in the booksof Air West Coast Ltd as at July 1, 2023. No post ref. required.Refer to the provided Chart of Accounts for the appropriate accountnames.
Marks: 4
General Journal – Air West Coast Ltd
Page 103
Date |
Account |
Post Ref |
Debit |
Credit |
2023 |
||||
To record recognition of the leased asset |
||||
To record lease payment |
- Provide the journal entries for the lease in the booksof Dubai Aerospace Enterprise as at July 1, 2023. No post ref.required. Refer to the provided Chart of Accounts for theappropriate account names.
Marks: 6
General Journal – Dubai AerospaceEnterprise
Page 10
Date |
Account |
Post Ref |
Debit |
Credit |
2023 |
||||
To record acquisition of the aircraft |
||||
To record the substitution of a lease receivable for theaircraft |
||||
To record receipt of the lease payment |
Answer:
Given Information
On July 1, 2023, Air West Coast Ltd decided to lease an aircraftfrom Dubai Aerospace Enterprise.
Lessor = Dubai Aerospace Enterprise
Lessee = Air West Coast Ltd.
Lease Term = 20 years (From 01/07/2013 to 30/06/2033)
Fair value of the aircraft at the commencement of the lease =$2,428,400
The lease payment at the inception of lease i.e. 01/07/2013 =$300,000
Net Lease liability = $2,428,400 – $300,000 = $2,128,400
Implicit interest rate of Lease = 10%
Lease payments of $250,000 is paid every year
Schedule showingthe Lease Payments, Interest Expense and LeaseLiability | ||||
Date | Interest Expense (10% ofoutstanding balance) | Lease Payment | Reduction in leasepayable | Lease payable |
(A) | (B) | (C) | (D) = (C) – (B) | (E) |
01/07/2023 | $ | $ | $ | $2,128,400 |
30/06/2024 | 212,840 ($2,128,400 * 10%) | 250,000 | 37,160 | 2,091,240 ($2,128,400 – $37,160) |
30/06/2025 | 209,124 ($2,091,240 * 10%) | 250,000 | 40,876 | 2,050,364 ($2,091,240 – $40,876) |
30/06/2026 | 205,036 | 250,000 | 44,964 | 2,005,400 |
30/06/2027 | 200,540 | 250,000 | 49,460 | 1,955,940 |
30/06/2028 | 195,594 | 250,000 | 54,406 | 1,901,534 |
30/06/2029 | 190,153 | 250,000 | 59,847 | 1,841,688 |
30/06/2030 | 184,169 | 250,000 | 65,831 | 1,775,857 |
30/06/2031 | 177,586 | 250,000 | 72,414 | 1,703,442 |
30/06/2032 | 170,344 | 250,000 | 79,656 | 1,623,787 |
30/06/2033 | 162,379 | 250,000 | 87,621 | 1,536,165 |
30/06/2034 | 153,617 | 250,000 | 96,383 | 1,439,782 |
30/06/2035 | 143,978 | 250,000 | 106,022 | 1,333,760 |
30/06/2036 | 133,376 | 250,000 | 116,624 | 1,217,136 |
30/06/2037 | 121,714 | 250,000 | 128,286 | 1,088,850 |
30/06/2038 | 108,885 | 250,000 | 141,115 | 947,735 |
30/06/2039 | 94,773 | 250,000 | 155,227 | 792,508 |
30/06/2040 | 79,251 | 250,000 | 170,749 | 621,759 |
30/06/2041 | 621,76 | 250,000 | 187,824 | 433,935 |
30/06/2042 | 43,393 | 250,000 | 206,607 | 227,328 |
30/06/2043 | 22,733 ($227,328 * 10%) | 250,000 | 227,267 | 61* (Approx. value is “0”) |
a. Journal entries for the lease in the books of AirWest Coast Ltd (Lessee) as at July 1, 2023:
Date | Account Titles andExplanation | Debit | Credit |
01/07/2023 | Aircraft A/c Dr. | $2,428,400 | |
To Dubai Aerospace EnterpriseA/c Cr. | $2,428,400 | ||
(To record the recognition of leasedasset and liability) |
Date | Account Titles andExplanation | Debit | Credit |
01/07/2023 | Dubai Aerospace EnterpriseA/c Dr. | $300,000 | |
To Cash A/c Cr. | $300,000 | ||
(To record the leasepayment) |
b. Journal entries for the lease in the books of DubaiAerospace Enterprise (Lessor) as at July 1, 2023:
Date | Account Titles andExplanation | Debit | Credit |
01/07/2023 | Aircraft A/c Dr. | $2,428,400 | |
To Cash A/c Cr. | $2,428,400 | ||
(To record the acquisition of theaircraft) |
Date | Account Titles andExplanation | Debit | Credit |
01/07/2023 | Air West Coast LtdA/c Dr. | $2,428,400 | |
To Aircraft on Lease A/c Cr. | $2,428,400 | ||
(To record the substitution of Leasereceivable for air craft) |
Date | Account Titles andExplanation | Debit | Credit |
01/07/2023 | Cash A/c Dr. | $300,000 | |
To Air West Coast LtdA/c Cr. | $300,000 | ||
(To record receipt of leasepayment) |
c. Journal entries in the books of Air West Coast Ltd inthe final year of the lease, i.e., in 20 years:
Date | Account Titles andExplanation | Debit | Credit |
30/06/2043 | Interest Expense A/c Dr. | $22,733 | |
Dubai Aerospace EnterpriseA/c Dr. | $227,267 | ||
To Cash A/c Cr. | $250,000 | ||
(To record the Final Lease installmenti.e. 20 year) |
d. Journal entries in the books of Dubai AerospaceEnterprise for the final year of the lease, i.e., in 20years:
Date | Account Titles andExplanation | Debit | Credit |
30/06/2043 | Cash A/c Dr. | $250,000 | |
To Interest Income A/c Cr. | $22,733 | ||
To Air West Coast Ltd A/c Cr. | $227,267 | ||
(To record the receipt of installmentfor 20 year) |
"Our Prices Start at $11.99. As Our First Client, Use Coupon Code GET15 to claim 15% Discount This Month!!"
![](https://writinghelpe.com/wp-content/uploads/2022/08/save.jpg)