Question $3$

KL$.$ Robotics leased production machinery to Wade Automotive on October $1,2019.$ The terms of the lease are as follows:

Lease term $($fixed and non$-$cancellable$)$

Estimated economic life of the machinery

Fair market value of the machinery at lease commencement

Bargain purchase option

Transfer of title

Guaranteed residual value, end of lease

Non$-$lease costs included in fixed payments $($maintenance agreement$)$

Annual fixed payments, due beginning of lease year

$8$ years

$12$ years

$$250,000$

None

None

$$25,000$

$$2,000$

$$33,500$

Wade Automotive accounts for lease and non$-$lease costs $ parately. Other information pertaining to the lessee follows:

Expected payout on guaranteed residual

Lessee's depreciation method

Lessee's incremental borrowing rate

Lessee's year end is September $30$

Implicit rate in lease

$$25,000$

Declining balance, $50\%$

$6\%$

Not'readily determinable

Not'readily determinable

DA

$\frac{1}{24}$

CPA

COMITARLES

iccoultants

AUTEE$5$

IT Questions $($Intermediate Financial Reporting $2)$

Required:

a$)$ Calculate the amount that Wade Automotive must initially recognize as aright$-$of$-$use $($ROU$)$ asset under this contract, using a financial calculator.

b$)$ Prepare an asset depreciation schedule using Excel that covers the useful life of the equipment. Confirm the initial measurement of the ROU asset using the Excel PV function.

c$)$ Prepare a lease liability amortization schedule for the life of the lease using Excel.

d$)$ Prepare all journal entries for Wade Automotive related to the lease for the vear