Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Pharoah Leasing Limited, which has a fiscal year end of October 31 and follows IFRS 16, signs an agreement on January 1, 2017 to lease

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed

Pharoah Leasing Limited, which has a fiscal year end of October 31 and follows IFRS 16, signs an agreement on January 1, 2017 to lease equipment to Irvine Limited. The following information relates to the agreement. 1. The term of the non-cancellable lease is six years, with no renewal option. The equipment has an estimated economic life of eight years. 2. The asset's cost to Pharoah, the lessor, is $310,000. The asset's fair value at January 1, 2017 is $310,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $45,553, which is not guaranteed. 4. Irvine Limited, the lessee, assumes direct responsibility for all executory costs. 5. The agreement requires equal annual rental payments, beginning on January 1, 2017. 6. Collectibility of the lease payments is reasonably predictable. There are no important uncertainties about costs that have not yet been incurred by the lessor. Click here to view the factor table. Assuming that Pharoah Leasing desires a 9% rate of return on its investment, use time value of money tables, a financial calculator, or Excel functions to calculate the amount of the annual rental payment that is required. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.) Annual rental payment $ Prepare an amortization schedule that would be suitable for the lessor for the lease term. (Round answers to 0 decimal places, e.g. 5,275.) Pharoah Leasing Corporation (Lessor) Lease Amortization Schedule Annual Lease Interest Net Payment on Net Investment Plus URV Investment Recovery Balance of Net Investment Date 1/1/17 $ 1/1/17 $ $ $ 1/1/18 1/1/19 1/1/20 1/1/21 1/1/22 12/31/22 $ Prepare all of the journal entries for the lessor for 2017 and 2018 to record the lease agreement, the receipt of lease payments, and the recognition of income. Assume that Pharoah prepares adjusting journal entries only at the end of the fiscal year. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem. Round answers to 0 decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit 1/1/17 Cash Lease Receivable Equipment Acquired for Lessee Unearned Interest Income 31/10/17 ~ Unearned Interest Income Interest Income (To record accrued interest) 1/1/18 Cash Lease Receivable (To record the receipt of lease payment) 31/10/18 Unearned Interest Income Interest Income (To record accrued interest) Prepare a comparative partial statement of income for Pharoah for fiscal years 2017 and 2018. Pharoah Leasing Limited Statement of Income (partial) For the Year Ended October 31, 2018 2017 Revenues Interest Income $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing Information And Cyber Security Governance

Authors: Robert E Davis

1st Edition

1000416089, 9781000416084

More Books

Students also viewed these Accounting questions

Question

Does the duty to accommodate apply in this case?

Answered: 1 week ago