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Queensland Grapes Ltd acquired an item of equipment and enters into a non-cancellable lease agreement with...

Queensland Grapes Ltd acquired an item of equipment and enters into a non-cancellable lease agreement with Orchard Plam Ltd on 1 January 2014. The lease consists of the following:  Date of inception: 1/1/14  Duration of lease: 4 years  Life of leased asset: 5 years  Lease payments (annual): $160,000 (annual) includes $20,000 for Maintenance and insurance costs per annum.  Guaranteed residual value (Added to final payment): $60,000  Interest rate: 10% Required: a) Determine the present value of minimum lease rental payment. b) Prepare the journal entries for the Lessor using the Net Method for the following i. Initial acquisition of the asset by the lessor ii. Transfer of control iii. Receipt of annual payments for 2014 and 2015 iv. Final payment for the year of 2017 c) Explain the differences between a Finance lease and an Operating lease (1.5 marks) d) Why is operating lease called “off-balance sheet financing”? (1.5 marks)

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