On January 1, 2020, Wildhorse Corp., which uses IFRS, signs a 10-year, non-cancellable lease agreement to lease a specialty lathe from Liu Inc. The following
On January 1, 2020, Wildhorse 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 $76,245 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. Wildhorse 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. | Wildhorses incremental borrowing rate is 10% per year. The lessors implicit rate is not known by Wildhorse Corp. | |
6. | The yearly rental payment includes $2,269.82 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. 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.)
Date | Account Titles and Explanation | Debit | Credit |
---|---|---|---|
1/1/20 | enter an account title | enter a debit amount | enter a credit amount |
enter an account title | enter a debit amount | enter a credit amount | |
enter an account title | enter a debit amount | enter a credit amount | |
enter an account title | enter a debit amount | enter a credit amount |
Prepare an amortization schedule for the term of the lease to be used by Wildhorse. Use Excel. (Round answers to 2 decimal places, e.g. 5,275.25.)
WILDHORSE CORP. Lease Amortization Schedule (Lessee) | ||||||||
---|---|---|---|---|---|---|---|---|
Date | Annual Payment Excluding Executory Costs | Interest on Unpaid Obligation | Reduction of Lease Obligation | Balance of Lease Obligation | ||||
$enter a dollar amount | ||||||||
Jan. 1, 2020 | $enter a dollar amount | $enter a dollar amount | enter a dollar amount | |||||
Jan. 1, 2021 | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | ||||
Jan. 1, 2022 | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | ||||
Jan. 1, 2023 | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | ||||
Jan. 1, 2024 | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | ||||
Jan. 1, 2025 | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | ||||
Jan. 1, 2026 | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | ||||
Jan. 1, 2027 | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | ||||
Jan. 1, 2028 | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | ||||
Jan. 1, 2029 | enter a dollar amount | enter a dollar amount | enter a dollar amount | enter a dollar amount | ||||
$enter a total amount | $enter a total amount | $enter a total amount |
Prepare the journal entries on Wildhorse 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. Wildhorse 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 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.) | |||
12/31/20 | 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.) | |||
1/1/21 | enter an account title to record lease payment | enter a debit amount | enter a credit amount |
enter an account title to record lease payment | enter a debit amount | enter a credit amount | |
enter an account title to record lease payment | enter a debit amount | enter a credit amount | |
(To record lease payment.) | |||
12/31/21 | 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.) | |||
12/31/21 | 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.) |
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