Cobalt Ltd Owns an Item of Machinery That Has a Cost

question 46

Multiple Choice

Cobalt Ltd owns an item of machinery that has a cost of $700,000 and accumulated depreciation of $200,000 as at 1 July 2003. On that date the machine is sold to Blue Ltd for $533,493, and then leased back over 8 years (the remaining life of the machine) . The lease is non-cancellable. The lease payments are $100,000 per annum, payable in arrears on 30 June each year. The interest rate implicit in the lease is 10 per cent and the economic benefits of the asset are expected to be realised evenly over its life. What are the entries to record the transactions in Cobalt's books on 1 July 2003 and 30 June 2004 (rounded to the nearest dollar) ?

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Definitions:

Signature Requirement

The legal or regulatory mandate that a document must be signed by one or more parties to validate or acknowledge it.

Uniform Commercial Code

A comprehensive set of laws governing commercial transactions in the United States, intended to harmonize laws across states and simplify transactions.

Agent

A person authorized to act on behalf of another person, typically in a business or legal matter.

Negotiable

A term denoting something that can be transferred or assigned from one party to another, typically referring to financial instruments or goods.