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.

 

  1. Calculate the interest rate implicit in the lease.
  2. Prepare a lease payment schedule for the first 5 years of the lease term. Round your answers to the nearest whole dollar.
  3. 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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