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Not Ordinary Drones (NOD), Inc., a lessor, leased a drone to Worldz Information Network, Ltd., [WIN], a lessee, on January 1, 2019. The following information
Not Ordinary Drones (NOD), Inc., a lessor, leased a drone to Worldz Information Network, Ltd., [WIN], a lessee, on January 1, 2019. The following information relates to the leased asset and the lease agreement: Fair value of leased drone $Undisclosed Lease 10 years Useful life 15 years Payment Due January 1 Payment frequency Annual Annual Instalments starting January 1, 2019 $33,000 Estimated residual value at end of the lease, [as stated in the problem] $23,600 Interest rate implicit in the lease (unknown to the lessee] 7% Interest rate incremental to the lessee 8% Ownership of drone reverts to lessor at end of lease term Year end for both companies December 31 Amortization method Straight line Accounting standards used - NOD ASPE - WIN IFRS REQUIRED: Select the one best answer to each of the questions listed below and input it in the computer. [43] The journal entry prepared by WIN to record any other transaction related to the lease contract on January 1, 2019. a. DEBIT-Cash ($33,000); CREDIT-Obligation Under Capital Lease ($33,000). O b. DEBIT-Obligation Under Capital Lease [$33,000); CREDIT-Cash ($33,000). O c. DEBIT-Executory Costs-Capital Lease [$33,000); CREDIT-Cash [$33,000). d. DEBIT-Interest Expense ($33,000); CREDIT-Cash ($33,000]. e. No journal entry required as there was no other transaction on January 1, 2019. [44] Assume for this Question only that at the time of entering into this lease contract, NOD was aware that WIN was operating under severe financial difficulties and thus determined that the credit risk associated with this lease was not normal when compared with the risk of collection of other similar receivables. How should NOD classify this lease? a. Classify as a finance type lease. O b. Classify as a capital, manufacturer/dealer type lease. C. Classify as a direct sales capital lease. d. Classify as an operating lease. e. None of the above
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