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n January 1, 2020, Crane Corp., which uses IFRS, signs a 10-year, non-cancellable lease agreement to lease a specialty lathe from Liu Inc. The following

n January 1, 2020, Crane 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 $95,654 beginning on January 1, 2020.
2. The lathes fair value on January 1, 2020, is $610,000.
3. The lathe has an estimated economic life of 12 years, with an unguaranteed residual value of $16,000. Crane 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. Cranes incremental borrowing rate is 11% per year. The lessors implicit rate is not known by Crane Corp.
6. The yearly rental payment includes $2,339.70 of executory costs related to insurance on the lathe.

Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. Assume that Cranes fiscal year end is May 31. Prepare the journal entries on Crane Corp.s books to reflect the signing of the lease agreement and to record payments and expenses related to this lease for the calendar years 2020 and 2021. Crane does not prepare reversing entries. (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 answers to 2 decimal places, e.g. 52.75.)

Date

Account Titles and Explanation

Debit

Credit

1/1/20

Insurance Expenses

enter a debit amount

enter a credit amount

Right of asset

enter a debit amount

enter a credit amount

Prepaid Insurance

enter a debit amount

enter a credit amount

cash

enter a debit amount

enter a credit amount

lease liability

enter a debit amount

enter a credit amount

(To record lease payment.)

5/31/20

Depreciation expenses

enter a debit amount

enter a credit amount

Accumulated Depreciation- Right Of Asset

enter a debit amount

enter a credit amount

(To record depreciation expense.)

5/31/20

Interest expenses

enter a debit amount

enter a credit amount

Lease Liabilty

enter a debit amount

enter a credit amount

(To record interest.)

12/31/20

Insurance Expenses

enter a debit amount

enter a credit amount

prepaid insurance

enter a debit amount

enter a credit amount

(To record expired insurance.)

1/1/21

Insurance Expenses

enter a debit amount

enter a credit amount

Interest expenses

enter a debit amount

enter a credit amount

prepaid insurance

enter a debit amount

enter a credit amount

lease liability

enter a debit amount

enter a credit amount

cash

enter a debit amount

enter a credit amount

(To record lease payment.)

5/31/21

depreciation expenses

enter a debit amount

enter a credit amount

Accumulated Depreciation

enter a debit amount

enter a credit amount

(To record depreciation expense.)

5/31/21

interest expenses

enter a debit amount

enter a credit amount

lease liability

enter a debit amount

enter a credit amount

(To record interest.)

12/31/21

insurance expenses

enter a debit amount

enter a credit amount

prepaid insurance

enter a debit amount

enter a credit amount

(To record expired insurance.)

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