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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. Assume for Questions [41] - [46] below that the residual value of the leased asset was not guaranteed. [41] How should WIN classify the lease? O a. A capital lease because the lease term is less than the useful life of the asset. Ob. A capital lease because the contract terms meet one of the criteria specified by ASPE. O c. An operating lease because the ownership rights are not acquired by the lessee. O d. An operating lease because NOD is not applying IFRS 16. Oe. A capital lease because the lease term does not meet the short lease term or low value exemptions provided for under IFRS-16. [42] The journal entry prepared by WIN to record the lease contract on January 1, 2019 would be a. DEBIT-Right of Use Assets [$260,000); CREDIT-Obligation Under Capital Lease ($260,000). O b. DEBIT-Right of Use Assets [$250,090]; CREDIT-Obligation Under Capital Lease ($250,090]. C. DEBIT-Right of Use Assets [$250,090]; CREDIT-Cash ($250,090]. O d. DEBIT-Right of Use Assets [$239,147]; CREDIT-Obligation Under Capital Lease ($239, 147] e. DEBIT-Right of Use Assets [$330,000); CREDIT-Obligation Under Capital Lease ($330,000)
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