Kiwi Air is a privately-owned regional airline operating throughout New Zealand. Their business primarily involves transport of airfreight cargo and private charter flights for large groups.
On 1 April 2019, Kiwi Air a new aircraft from AirTeroa Aircraft Manufacturers Limited in a non- cancellable lease arrangement. The fair value of the aircraft on inception of the lease was $2,428,400. The term of the lease is 20 years, at which time the aircraft will be returned to AirTeroa. Kiwi Air’s depreciation policy applies the straight-line method for all non-current assets.
Upon inception of the lease (1 April 2019), Kiwi Air made an initial payment of $300,000. Its annual lease payments are $250,000, to be paid each year of the lease term on 31 March.
- Calculate the interest rate implicit in the lease.
- Prepare a lease payment schedule for the first 5 years of the lease term. Round your answers to the nearest whole dollar.
- Provide ALL the necessary journal entries relating to the lease arrangement in the books of Kiwi Air from the inception of the lease on 1 April 2019 to 31 March 2020 (i.e. the end of the first year of the lease).
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