Cobalt Ltd Owns an Item of Machinery That Has a Cost

question 34

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 Blue's books on 1 July 2003 and 30 June 2004 (rounded to the nearest dollar) ?

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Definitions:

Alkylation

A chemical reaction in which an alkyl group is introduced into an organic compound.

Lithium Diisopropylamide

A strong, non-nucleophilic base used in organic synthesis for deprotonation reactions, represented by the chemical formula [(CH3)2CH]2NLi.

Resonance Forms

Different Lewis structures for a single molecule that cannot be represented by only one structure but by the hybrid of these structures, showing delocalized electrons.

Enolate Ion

A negatively charged ion formed by the deprotonation of an alpha carbon to a carbonyl group in an aldehyde or ketone.