Answer:
Dr cash $48,000
Cr Truck account $44,000
Cr gain on disposal of truck $4,000
Dr right-of-use asset $48,000
Cr lease liability $48,000
Dr lease expense($9600+$2880) $ 12,480
Cr right-of-use asset $9,600
Cr lease liability $2,880
Explanation:
The sale of the asset to Peete Finance implies for $48,000 implies that cash is debited with $48,000 while truck is credited with the book value of $44,000 with the difference of $4,000 credited to gain on disposal
The amount to recognize in right-of-use asset in respect of the lease is the present value of lease payments computed thus:
=-pv(rate,nper,pmt,fv)
rate is the rate of interest of 6%
nper is the number of years of lease which is 5
pmt is annual lease rental of $11,395
fv is the future value of lease payments which is unknown
=-pv(6%,5,11395,0)=$48,000
Depreciation charge=$48,000/5=$ 9,600
Interest expense=$48,000*6%=$2880
