Use the information for Rauch AG and Donahue SA from E21.16. Instructions a. Explain (and show calculations)

Question:

Use the information for Rauch AG and Donahue SA from E21.16.

Instructions

a. Explain (and show calculations) how Rauch arrived at the amount of the rental payments used in the lease agreement.

b. Prepare the entries for Rauch for 2019.

c. Suppose that instead of €8,250, Rauch expects the residual value at the end of the lease to be €5,000, but Donahue agrees to guarantee a residual value of €8,250. All other facts being equal, how would Rauch change the amount of the annual rental payments, if at all?

d. Explain how a fully guaranteed residual value by Donahue would change the accounting for Rauch, the lessor.

e. Explain how a bargain renewal option for one extra year at the end of the lease term would change the accounting of the lease for Rauch, the lessor.

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a Fairvalue of leased asset to lessor 25000 LessPresent value of unguaranteed residual value 8250 X 82270 Present value of 1 at 5 for 4 periods 6787 Amount to be recovered through lease payments 18213 ...View the full answer

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Intermediate Accounting IFRS

ISBN: 978-1119372936

3rd edition

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

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Question Posted: Sep 21, 2024 05:14 AM

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Use the information for Rauch AG and Donahue SA from E21.16. Instructions a. Explain (and show calculations)

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Step by Step Answer:

a Fairvalue of leased asset to lessor 25000 LessPresent value of unguaranteed residual value 8250 X 82270 Present value of 1 at 5 for 4 periods 6787 Amount to be recovered through lease payments 18213 ...View the full answer

Intermediate Accounting IFRS

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