Exercise 20-4

The following facts are for a non-cancellable lease agreement between Pharoah Corporation and Russell Corporation, a lessee:

Inception dateJuly 1, 2020Annual lease payment due at the beginning of each year, starting July 1, 2020$20,585.16Bargain purchase option price at end of lease term reasonably certain to be exercised by Russell$4,500.00Lease term5 yearsEconomic life of leased equipment10 yearsLessor's cost$41,000.00Fair value of asset at July 1, 2020$90,200.00Lessor's implicit rate9%Lessee's incremental borrowing rate9%

The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties about costs that have not yet been incurred by the lessor. The lessee assumes responsibility for all executory costs. Both Russell and Pharoah use IFRS 16.

Click here to view the factor table PRESENT VALUE OF 1.

Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE.

Calculate the amount of gross investment at the inception of the lease for Pharoah Corporation, the lessor.(Round answers to 2 decimal places, e.g. 52.75.)

Gross investment$Enter your answer in accordance to the question statement

Calculate the amount of net investment at the inception of the lease for Pharoah Corporation, the lessor.(Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places, e.g. 52.75.)

Net investment$Enter your answer in accordance to the question statement

Prepare a lease amortization schedule using a computer spreadsheet for Pharoah Corporation for the five-year lease term.(Round answers to 2 decimal places, e.g. 52.75.)

Pharoah Leasing Corporation (Lessor)

Lease Amortization ScheduleDateAnnual

Lease

Payment

Plus POInterest

on Net

InvestmentNet

Investment

RecoveryBalance

of Net

Investment7/1/20$

7/1/20$

$

7/1/21

$

7/1/22

7/1/23

7/1/24

6/30/24

$

$

$

Prepare the journal entries to reflect the signing of the lease and to record the receipts and income related to this lease for the years 2020, 2021, and 2022. The lessor's accounting period ends on December 31, and Pharoah Corporation 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. 52.75.)