Question
On January 1, 2020,SheridanCorp., which uses IFRS, signs a10-year, non-cancellable lease agreement to lease a specialty lathe from Liu Inc. The following information concerns the
On January 1, 2020,SheridanCorp., which uses IFRS, signs a10-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 $92,405beginning on January 1, 2020.
2.The lathe's fair value on January 1, 2020, is $590,000.
3.The lathe has an estimated economic life of12years, with an unguaranteed residual value of $18,000.SheridanCorp. 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.Sheridan's incremental borrowing rate is11% per year. The lessor's implicit rate is not known bySheridanCorp.
6.The yearly rental payment includes $2,150.19of executory costs related to insurance on the lathe.
Assume this is a manufacturer/dealer lease.
Assume thatSheridan's fiscal year end is May 31. Prepare the journal entries onSheridanCorp.'s books to reflect the signing of the lease agreement and to record payments and expenses related to this lease for the calendar years 2020 and 2021.Sheridandoes not prepare reversing entries.
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