Exercise 20-1

On January 1, 2020, Blossom Corp., which uses IFRS, 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 $85,476 beginning on January 1, 2020.
2.		The lathes fair value on January 1, 2020, is $540,000.
3.		The lathe has an estimated economic life of 12 years, with an unguaranteed residual value of $15,000. Blossom Corp. depreciates similar equipment using the straight-line method.
4.		The lease is non-renewable. At the termination of the lease, the lathe reverts to the lessor.
5.		Blossoms incremental borrowing rate is 11% per year. The lessors implicit rate is not known by Blossom Corp.
		6. The yearly rental payment includes $2,869.90 of executory costs related to insurance on the lathe. 1. Using (1) factor tables, (2) a financial calculator, or (3) 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. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places, e.g. 5,275.25.) Prepare an amortization schedule for the term of the lease to be used by Blossom. Use Excel. Prepare the journal entries on Blossom 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. Blossom does not use reversing entries. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.25.)