Refer to the information in P20–3.
In P On January 1, 2011, Hunter Ltd. entered into an agreement to lease a truck from Situ Ltd. Both Hunter and Situ use IFRS. The details of the agreement are as follows:
Carrying value of truck for Situ Ltd................$20,691
Fair value of truck ....................$20,691
Economic life of truck ................... 5 years
Lease term ....................... 3 years
Rental payments (at beginning of each month) .......... $620
Executory costs included in rental payments each month for insurance.. $20
Incremental borrowing rate for Hunter Ltd............ 12%
Hunter Ltd. guarantees Situ Ltd. that at the end of the lease term Situ Ltd. will realize $3,500 from selling the truck.
Instructions
(a) Prepare the journal entries that Situ would make on January 1, 2011, and the adjusting journal entries at December 31, 2011, to record the annual interest income from the lease arrangement, assuming that Situ has a December 31 fiscal year end.
(b) Identify all accounts that will be reported by Situ Ltd. on its comparative income statement for the fiscal years-ending December 31, 2012, and 2011, and its comparative statement of financial position at December 31, 2012, and 2011. Be specific about the classifications in each statement.
(c) Prepare a partial comparative statement of cash flows for Situ for the years ended December 31, 2012, and 2011, for all transactions related to the information in P20-3. Be specific about the classifications in the financial statement.