On January 1, 2020, Lavery Corp., which follows ASPE, leased equipment to Cullumber Ltd., which follows IFRS 16. Both Lavery and Cullumber have calendar year ends. The following information concerns this lease. 1. The term of the non-cancellable lease is six years, with no renewal option. The equipment reverts to the lessor at the termination of the lease, at which time it is expected to have a residual value (not guaranteed) of $7,100. Cullumber Ltd. depreciates all its equipment on a straight-line basis. 2. Equal rental payments are due on January 1 of each year, beginning in 2020. 3. The equipment's fair value on January 1, 2020, is $148,000 and its cost to Lavery is $111,000. 4. The equipment has an economic life of seven years. 5. Lavery set the annual rental to ensure a 11% rate of return. Cullumber's incremental borrowing rate is 12% and the lessor's implicit rate is unknown to the lessee. 6. Collectibility of lease payments is reasonably predictable and there are no important uncertainties about any unreimbursable costs that have not yet been incurred by the lessor. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE. Using time value of money tables, a financial calculator, or Excel spreadsheet functions, calculate the amount of the annual rental payment. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.) Annual rental payment Prepare all necessary journal entries and adjusting entries for Cullumber for 2020. (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 o for the amounts. Record journal entries in the order presented in the problem. Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit (To record inception and payment of lease.) (To record depreciation expense.) (To record interest.) Prepare all necessary journal entries and adjusting entries for Lavery for 2020. (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 o for the amounts. Record journal entries in the order presented in the problem. Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit 1/1/20 (To record inception of lease and cost of goods sold.) man (Collection of lease payment.) (To record interest.)
