Joplin Ltd Entered into a Lease Agreement on 1 July

question 46

Multiple Choice

Joplin Ltd entered into a lease agreement on 1 July 2013 with Thomas Ltd.The terms of the lease are as follows: $$\begin{array} { | l | r | l | } \hline \text { Duration of lease } & 10 \text { years } & \\\hline \text { Useful life of leased asset } & 13 \text { years } & \\\hline \text { Unguaranteed residual } & \$ 2,000 & \\\hline \text { Lease payment } & \$ 1,000 & \text { at inception } \\\hline \text { Lease payments (in arrears) } & \$ 2,500 & \begin{array} { l } \text { per year (10 payments) } \\\text { due } 30 \text { June }\end{array} \\\hline\end{array}$$ The interest rate implicit in the lease is 6% and the fair value of the leased asset at the inception of the lease is $20517.The lease is non-cancellable and at the end of the lease the asset is returned to the lessor.The economic benefits provided by the lease asset are expected to be consumed evenly over its life.What is the value of the lease asset and lease liability in the books of the lessee after adjusting entries made on 30 June 2014?

• A)lease asset: $17908; lease liability: $18064
• B)lease asset: $21352; lease liability: $21954
• C)lease asset: $18465; lease liability: $18188
• D)lease asset: $17460; lease liability: $17004

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Definitions:

Marginal Social Cost

The additional cost to society of producing one extra unit of a good or service, considering both private costs and externalities.

Marginal Private Cost

The additional cost incurred by the producer for producing an extra unit of a good, not considering external effects.

Equilibrium

A state where market supply and demand balance each other, and, as a result, prices become stable.

Social Marginal Benefit

The additional benefit to society of consuming or producing one extra unit of a good or service, including both direct and external benefits.