Question
On January 1, 2023, Crane 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, 2023, Crane 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 $76,200 beginning on January 1, 2023. | |
| 2. | The lathes fair value on January 1, 2023, is $500,000. | |
| 3. | The lathe has an estimated economic life of 12 years, with an unguaranteed residual value of $18,000. Crane 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. | Cranes incremental borrowing rate is 10% per year. The lessors implicit rate is not known by Crane. | |
| 6. | The yearly rental payment includes $2,224.82 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.
(a)
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. (List all debit entries before credit entries. 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 |
|---|---|---|---|
| 1/1/23 | enter an account title for the journal entry on January 1, 2023 | enter a debit amount | enter a credit amount |
| enter an account title for the journal entry on January 1, 2023 | enter a debit amount | enter a credit amount | |
| enter an account title for the journal entry on January 1, 2023 | enter a debit amount | enter a credit amount | |
| enter an account title for the journal entry on January 1, 2023 | enter a debit amount | enter a credit amount |
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