E20-1 (LO 4, 5, 8) Lessee Entries, Right-of-Use Asset with Executory Costs
On January 1, 2020, Malaki Corp., which uses IFRS 16, signs a 10-year, non-cancellable lease agreement to lease a specialty lathe from Liu Inc. The following information concerns the lease agreement.
1. The agreement requires equal rental payments of $73,580 beginning on January 1, 2020.
2. The lathes fair value on January 1, 2020 is $450,000.
3. The lathe has an estimated economic life of 12 years, with an unguaranteed residual value of $12,000. Maleki Corp. depreciates similar equipment using the straight-line method. Estimated economic life of 12 years, with an unguaranteed residual value of $12,000. Maleki Corp.
4. The lease is non-renewable. At the termination of the lease, the lathe reverts to the lessor.
5. Malekis incremental borrowing rate is 12% per year. The lessors implicit rate is not known by Maleki Corp.
6. The yearly rental payment includes $2,470.29 of executory costs related to insurance on the loom.
Instructions: a) Using a financial calculator or Excel functions, calculate the amount of the right-of-use asset and lease liability and prepare the initial entry to reflect the signing of the lease agreement.
Initial Measurement of Right-of-Use Asset and Lease Liability
Contractual Rights and Obligations under Lease, Jan. 1, 2020

b) Prepare an amortization schedule for the term of the lease to be used by Maleki. Use Excel. Round to the nearest cent.
Maleki Corp
Lease Amortization Schedule (Lessee)
	Annual Pmt. Excl.		Interest (12%)		Reduction of	Balance of
Date	Exec. Costs		on Unpaid Liability		Lease Liability	Lease Liability

c) Prepare the journal entries on Maleki Corp.s books to record the payments and expenses related to this lease for the years 2020 and 2021 as well as any adjusting journal entries at its fiscal year ends of December 31, 2020 and 2021. Maleki does not use reversing entries.

d) Prepare Maleki Corp.s required note disclosure on the lease for the fiscal year ending December 31, 2021.