L leases a delivery vehicle to D on an operating lease.

L leases a delivery vehicle to D on an operating lease. The terms of the lease are:

? term 3 years,

? special introductory discount in year one, rental reduced to $2,000,

? annual rentals of $5,000 per year for years two and three.

How much should D recognize as an expense in its income statement for the first year of the lease?

(A) $2,000

(B) $4,000

(C) $5,000

(D) $12,000

Logan’s Locks are preparing financial statements for the year ended 31 December 2003. During the year Logan’s entered into two operating lease agreements which are detailed below.

(a) On 1 August 2003 the entity entered into an operating lease for plant and machinery. The lease term is three years and quarterly rentals of $9,000 are payable in arrears.

(b) The entity entered into a second agreement on 1 October 2003 for the lease of motor vehicles. This agreement was again for three years. Under the terms of the contract Logan has paid an initial rental of $75,000, this will be followed by quarterly rentals of $4,000. The rentals are payable in advance and commence on 1 April 2004.

Requirement

Prepare the accounting entries to account for the operating leases above in the financial statements for Logan’s Locks for the year ended 31 December 2003 and draft the relevant extracts and disclosure notes.