Question
On January 1, 2020, Lavery Corp., which follows ASPE, leased equipment to Pharoah Ltd., which follows IFRS 16. Both Lavery and Pharoah have calendar year
On January 1, 2020, Lavery Corp., which follows ASPE, leased equipment to Pharoah Ltd., which follows IFRS 16. Both Lavery and Pharoah 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 $6,500. Pharoah 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 equipments fair value on January 1, 2020, is $153,000 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 8% rate of return. Pharoahs incremental borrowing rate is 9% and the lessors 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 | $enter the Annual rental payment in dollars |
List of Accounts
Prepare all necessary journal entries and adjusting entries for Pharoah 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 0 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 |
---|---|---|---|
choose a transaction date 1/1/2012/31/20 | enter an account title to record inception and payment of lease | enter a debit amount | enter a credit amount |
enter an account title to record inception and payment of lease | enter a debit amount | enter a credit amount | |
enter an account title to record inception and payment of lease | enter a debit amount | enter a credit amount | |
(To record inception and payment of lease.) | |||
choose a transaction date 1/1/2012/31/20 | enter an account title to record depreciation expense | enter a debit amount | enter a credit amount |
enter an account title to record depreciation expense | enter a debit amount | enter a credit amount | |
(To record depreciation expense.) | |||
choose a transaction date 1/1/2012/31/20 | enter an account title to record interest | enter a debit amount | enter a credit amount |
enter an account title to record interest | enter a debit amount | enter a credit amount | |
(To record interest.) |
List of Accounts
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 0 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 | enter an account title to record inception of lease and cost of goods sold | enter a debit amount | enter a credit amount |
enter an account title to record inception of lease and cost of goods sold | enter a debit amount | enter a credit amount | |
enter an account title to record inception of lease and cost of goods sold | enter a debit amount | enter a credit amount | |
enter an account title to record inception of lease and cost of goods sold | enter a debit amount | enter a credit amount | |
enter an account title to record inception of lease and cost of goods sold | enter a debit amount | enter a credit amount | |
(To record inception of lease and cost of goods sold.) | |||
choose a transaction date 1/1/2012/31/20 | enter an account title to record the collection of lease payment | enter a debit amount | enter a credit amount |
enter an account title to record the collection of lease payment | enter a debit amount | enter a credit amount | |
(Collection of lease payment.) | |||
choose a transaction date 1/1/2012/31/20 | enter an account title to record interest | enter a debit amount | enter a credit amount |
enter an account title to record interest | enter a debit amount | enter a credit amount | |
(To record interest.) |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started