On 1 July 2010 Cherry Ltd acquired an item of plant for

On 1 July 2010 Cherry Ltd acquired an item of plant for $31 864. On the samedate Cherry Ltd entered into a lease agreement with Hazel Ltd in relation to theasset. According to the lease agreement Hazel Ltd agreed to pay $12 000immediately with a further two payments of $12 000 on 1 July 2011 and 1 July2012.At 30 June 2013 the asset is to be returned to the lessor and its residual value isexpected to be $6000. Hazel Ltd has agreed to guarantee the expected residualvalue at 30 June 2013. All insurance and maintenance costs are to be paid byCherry Ltd and are expected to amount to $2000 p.a. The costs of preparing thelease 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 linebasis.RequiredA. Prepare a schedule of lease receipts for Cherry Ltd and the journal entriesfor the year ended 30 June 2011.B. Prepare a schedule of lease payments for Hazel Ltd and the journal entriesfor the year ended 30 June 2011.C. Assume that Hazel Ltd guaranteed a residual value of only $4000. Preparea lease schedule for both Cherry Ltd and Hazel Ltd.D. Instead of acquiring the plant for $31 864 assume that Cherry Ltdmanufactured the plant at a cost of $29 500 before entering into the leaseagreement with Hazel Ltd. Prepare a schedule of lease receipts for CherryLtd and the journal entries for the year ended 30 June 2011.E. Assume that Hazel Ltd manufactured the plant itself at a cost of $29 500and sold the plant to Cherry Ltd for $31 864. Hazel Ltd then leased itback under the original terms of the finance lease with Hazel Ltdguaranteeing a residual value of $4000. Prepare a lease schedule for bothCherry Ltd and Hazel Ltd for the year ended 30 June 2011.
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