A B D E G H Question 3: Lease Accounting - Lessor (20 marks) 1 2 3 QUESTION DATA: 4 Black Manufacturing Co. agreed to lease machinery to White Inc. Details of the lease agreement are as follows: 5 (1). The non-cancellable lease term is 5 years, beginning August 1, 2020, with the first annual payment of $82,820 due immediately. 6 (2) The fair market value of the leased machinery on August 1, 2020 is $400,000. The equipment cost Black $300,000 to manufacture. 7 (3). The implicit rate in the lease is 5%. 5. (4). The machinery has an economic life of 6 years. 9 (5). Both companies depreciate all capital assets using the straight-line method. (6). White Inc. has a bargain option to purchase the machinery for $30,000 at the end of the lease term. The fair market value of the machinery at that time is expected to be $60,000. 10 (7). Collectibility of the lease payments is reasonably predictable. There are no important uncertainties surrounding the amount of costs yet to be incurred by Black Manufacturing Co. 11 12 (8) Both companies have a December 31 year-end and follow ASPE. 13 8 9 14 REQUIRED: Complete the specific steps below. Ensure you are answering from the correct perspective of the lease (Lessee vs. Lessor) and from the correct standard (IFRS or ASPE)! 15 Step 1: Lease classification criteria both for the Lessee and Lessor and for IFRS and ASPE has been provided below. Select whether the criteria test is needed for Black Manufacturing Co. (Lessor) using the 39 Step 4: Assume Blank Manufacturing Co. (Lessor) condudes the lease to be a capital lease Select using the drop-down box the specific type of lease. Explain why you made your selection. 40 41 Specific type of lease: : 42 Explanation why: 43 44 Step 5: Complete the amortization schedule given below. Only those cells in blue require completion. Do not leave a blue cell blank. If it is zero, insert a zero. Round all interest amounts to the nearest 5a 45 whole number 46 47 Date Payment Interest Principal Carrying Value 48 Aug. 1/20 $ 400,000 49 Aug. 1/20 $ 82.820 $ 82.820 50 Aug. 1/21 15,859 250,219 51 52 Step 6: Prepare the journal entries required from August 1, 2020 to August 1, 2021 for Black Manufacturing Co. Round all interest entries to the nearest whole dollar using the ROUND formula. Use the 53 description under the date to help with the ordering of the journal entries. Date Account Title Debit Credit Aug. 1/20 Lease start 54 55 56 57 S7 58 59 60 61 62 63 64 65 66 67 Aug. 1/20 P1 Dec. 31/20 Y/E ROUND to o decimals A B D E G H Question 3: Lease Accounting - Lessor (20 marks) 1 2 3 QUESTION DATA: 4 Black Manufacturing Co. agreed to lease machinery to White Inc. Details of the lease agreement are as follows: 5 (1). The non-cancellable lease term is 5 years, beginning August 1, 2020, with the first annual payment of $82,820 due immediately. 6 (2) The fair market value of the leased machinery on August 1, 2020 is $400,000. The equipment cost Black $300,000 to manufacture. 7 (3). The implicit rate in the lease is 5%. 5. (4). The machinery has an economic life of 6 years. 9 (5). Both companies depreciate all capital assets using the straight-line method. (6). White Inc. has a bargain option to purchase the machinery for $30,000 at the end of the lease term. The fair market value of the machinery at that time is expected to be $60,000. 10 (7). Collectibility of the lease payments is reasonably predictable. There are no important uncertainties surrounding the amount of costs yet to be incurred by Black Manufacturing Co. 11 12 (8) Both companies have a December 31 year-end and follow ASPE. 13 8 9 14 REQUIRED: Complete the specific steps below. Ensure you are answering from the correct perspective of the lease (Lessee vs. Lessor) and from the correct standard (IFRS or ASPE)! 15 Step 1: Lease classification criteria both for the Lessee and Lessor and for IFRS and ASPE has been provided below. Select whether the criteria test is needed for Black Manufacturing Co. (Lessor) using the 39 Step 4: Assume Blank Manufacturing Co. (Lessor) condudes the lease to be a capital lease Select using the drop-down box the specific type of lease. Explain why you made your selection. 40 41 Specific type of lease: : 42 Explanation why: 43 44 Step 5: Complete the amortization schedule given below. Only those cells in blue require completion. Do not leave a blue cell blank. If it is zero, insert a zero. Round all interest amounts to the nearest 5a 45 whole number 46 47 Date Payment Interest Principal Carrying Value 48 Aug. 1/20 $ 400,000 49 Aug. 1/20 $ 82.820 $ 82.820 50 Aug. 1/21 15,859 250,219 51 52 Step 6: Prepare the journal entries required from August 1, 2020 to August 1, 2021 for Black Manufacturing Co. Round all interest entries to the nearest whole dollar using the ROUND formula. Use the 53 description under the date to help with the ordering of the journal entries. Date Account Title Debit Credit Aug. 1/20 Lease start 54 55 56 57 S7 58 59 60 61 62 63 64 65 66 67 Aug. 1/20 P1 Dec. 31/20 Y/E ROUND to o decimals
