Merrill Corporation, which uses ASPE, enters into a six-year lease of equipment on September 1, 2020, that
Question:
Merrill Corporation, which uses ASPE, enters into a six-year lease of equipment on September 1, 2020, that requires six annual payments of $28,000 each, beginning September 1, 2020. In addition, Merrill guarantees the lessor a residual value of $17,000 at lease end. The equipment has a useful life of seven years.
(a) Using (1) tables, (2) a financial calculator, or (3) Excel functions, calculate the amount of the capital lease and prepare Merrill’s September 1, 2020 journal entry, assuming an interest rate of 9%. Round amounts to the nearest dollar.
(b) Assume instead that Merrill follows IFRS and that the amount expected to be paid under the residual value guarantee is $10,000. Calculate the amount of the right-of-use asset and prepare Merrill’s September 2020 journal entries, assuming an interest rate of 9%. Round amounts to the nearest dollar.
Step by Step Answer:
Intermediate Accounting Volume 2
ISBN: 9781119497042
12th Canadian Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy