On January 1, 2020, Sheridan 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 2. 3. The agreement requires equal rental payments of $84,756 beginning on January 1, 2020. The lathe's fair value on January 1, 2020, is $540,000. The lathe has an estimated economic life of 12 years, with an unguaranteed residual value of $14,000. Sheridan Corp. depreciates similar equipment using the straight-line method. The lease is non-renewable. At the termination of the lease, the lathe reverts to the lesson. Sheridan's incremental borrowing rate is 11% per year. The lessor's implicitrate is not known by Sheridan Corp. The yearly rental payment includes $2.149.90 of executory costs related to insurance on the lathe. 4. 5. 5 6. Assume this is a manufacturer/dealer lease. Part 1 Using (1) factor tables, (2) a financial calculator, or (3) Excel functions, calculate the amount of the right-of-use asset and lease liability and prepare the initial entry to reflect the signing of the lease agreement. (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 for the amounts. Round factor values to 5 decimal places, eg. 1.25124 and final answers to 2 decimal places, eg. 5,275.25.) Date Account Titles and Explanation Debit Credit 1/1/20 Innual Payment xcluding Executory Costs Interest on Unpaid Obligation Reduction of Lease Obligation Balance of Lease Obligation 540000 82606.1 82606.1 457393.9 826061 50313.33 32292.77 425101.13 82606,1 46761.12 35844.98 38925615 82606.1 42818.18 39787.92 349468.23 826061 3844151 44164,60 305303,63 B2606.1 33583,40 49022.70 256280.93 826061 28190.90 54415.20 201865,43 82606,1 3844151 44164 60 305303,63 82606.1 33583.40 49022.70 256280.93 82606,1 28190.90 5441520 201865.43 82606.1 22205,20 60400.90 141464.53 826061 15561.10 67045.00 74419.53 826061 8186.15 74419.95 826061 $ 286060.89 539999.91 Prepare the journal entries on Sheridan Corp.'s books to record the payments and expenses related to this lease for the years 2020 and 2021 as well as any adjusting journal entries at its fiscal year ends of December 31, 2020 and 2021. Sheridan does not use reversing entries. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 2 decimal places, eg. 5,275.25.) Date Account Titles and Explanation Debit Credit 12/31/20 Depreciation Expense Accumulated Depreciation Right of Use Asset (To record depreciation expense.) 12/31/20 Interest Expense 50313.33 Lease Liability 5031333 (To record interest.) 1/1/21 Right-of-Use Asset Lease Liability Cash (To record lease payment.) 12/31/21 II II III II TO DO! (To record depreciation expense.) 12/31/21 (To record interest.)
