The following facts pertain to a non-cancelable lease agreement between Alschuler Leasing and McKee Electronics, a lessee,
Question:
The following facts pertain to a non-cancelable lease agreement between Alschuler Leasing and McKee Electronics, a lessee, for a computer system.
Commencement date October 1, 2019
Lease term.....................................................................................6 years
Economic life of leased equipment............................................6 years
Fair value of asset at October 1, 2019....................................£313,043
Book value of asset at October 1, 2019..................................£280,000
Residual value at end of lease term..................................................-0-
Lessor's implicit rate..........................................................................8%
Lessee's incremental borrowing rate...............................................8%
Annual lease payment due at the beginning of
each year, beginning with October 1, 2019...............................£62,700
The collectibility of the lease payments is probable by the lessor. The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment.
The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a sales-type lease by the lessor.
Instructions
a. Assuming the lessee's accounting period ends on September 30, answer the following questions with respect to this lease agreement.
1. What items and amounts will appear on the lessee's income statement for the year ending September 30, 2020?
2. What items and amounts will appear on the lessee's statement of financial position at September 30, 2020?
3. What items and amounts will appear on the lessee's income statement for the year ending September 30, 2021?
4. What items and amounts will appear on the lessee's statement of financial position at September 30, 2021?
b. Assuming the lessee's accounting period ends on December 31, answer the following questions with respect to this lease agreement.
1. What items and amounts will appear on the lessee's income statement for the year ending December 31, 2019?
2. What items and amounts will appear on the lessee's statement of financial position at December 31, 2019?
3. What items and amounts will appear on the lessee's income statement for the year ending December 31, 2020?
4. What items and amounts will appear on the lessee's statement of financial position at December 31, 2020?
Step by Step Answer:
Intermediate Accounting IFRS
ISBN: 978-1119372936
3rd edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield