On January 1, 2020, Sunland 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. The agreement requires equal rental payments of $76,975 beginning on January 1, 2020.

2. The lathes fair value on January 1, 2020, is $500,000.

3. The lathe has an estimated economic life of 12 years, with an unguaranteed residual value of $15,000. Sunland Corp. depreciates similar equipment using the straight-line method.

4. The lease is non-renewable. At the termination of the lease, the lathe reverts to the lessor.

5. Sunlands incremental borrowing rate is 10% per year. The lessors implicit rate is not known by Sunland Corp.

6. The yearly rental payment includes $2,999.82 of executory costs related to insurance on the lathe.

Assume this is a manufacturer/dealer lease.

Click here to view the factor table PRESENT VALUE OF 1.

Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE.

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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 0 for the amounts. Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places, e.g. 5,275.25.)Prepare the journal entries on Sunland 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. Sunland 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, e.g. 5,275.25.)

Date

Account Titles and Explanation

Debit

Credit

12/31/20

enter an account title to record depreciation expenseEntry field with correct answer

Depreciation Expense

enter a debit amountEntry field with incorrect answer now contains modified data

enter a credit amountEntry field with correct answer

enter an account title to record depreciation expenseEntry field with incorrect answer now contains modified data

Accumulated Depreciation - Buildings

enter a debit amountEntry field with correct answer

enter a credit amountEntry field with incorrect answer now contains modified data

(To record depreciation expense.)

12/31/20

enter an account title to record interestEntry field with correct answer

Interest Expense

enter a debit amountEntry field with correct answer

42602.48

enter a credit amountEntry field with correct answer

enter an account title to record interestEntry field with incorrect answer now contains modified data

Interest Payable

enter a debit amountEntry field with correct answer

enter a credit amountEntry field with correct answer

42602.48

(To record interest.)

1/1/21

enter an account title to record lease paymentEntry field with incorrect answer now contains modified data

enter a debit amountEntry field with incorrect answer now contains modified data

enter a credit amountEntry field with correct answer

enter an account title to record lease paymentEntry field with incorrect answer now contains modified data

enter a debit amountEntry field with incorrect answer now contains modified data

enter a credit amountEntry field with incorrect answer now contains modified data

enter an account title to record lease paymentEntry field with incorrect answer now contains modified data

enter a debit amountEntry field with correct answer

enter a credit amountEntry field with incorrect answer now contains modified data

(To record lease payment.)

12/31/21

enter an account title to record depreciation expenseEntry field with correct answer

Depreciation Expense

enter a debit amountEntry field with incorrect answer now contains modified data

enter a credit amountEntry field with correct answer

enter an account title to record depreciation expenseEntry field with incorrect answer now contains modified data

enter a debit amountEntry field with correct answer

enter a credit amountEntry field with incorrect answer now contains modified data

(To record depreciation expense.)

12/31/21

enter an account title to record interestEntry field with correct answer

Interest Expense

enter a debit amountEntry field with correct answer

39465.21

enter a credit amountEntry field with correct answer

enter an account title to record interestEntry field with incorrect answer now contains modified data

Interest Payable

enter a debit amountEntry field with correct answer

enter a credit amountEntry field with correct answer

39465.21

(To record interest.)

it is