Question 4 Your employer, Sheridan Inc., is a large Canadian public company that uses IFRS 16. You have collected the following information about a lease for a fleet of trucks used by Sheridan to transport completed products to warehouses across the country. The trucks have an economic life of eight years. The lease term is from July 1, 2020, to June 30, 2027, and the company intends to lease the equipment for this period of time, so the lease term is seven years. The lease payment per year is $566,500, payable in advance, with no other payments required, and no renewal option or purchase option available. The expected value of the fleet of trucks at June 30, 2027, is $465,900; this value is guaranteed by Sheridan. The leased trucks must be returned to the lessor at the end of the lease. Sheridan's management is confident that, with an aggressive maintenance program, Sheridan has every reason to believe that the asset's residual value will be more than the guaranteed amount at the end of the lease term. Sheridan's incremental borrowing rate is 8%, and the rate implicit in the lease is not known. At the time the lease was signed, the fair value of the leased trucks was $3,185,362. 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 time value of money tables, a financial calculator, or Excel functions, determine the PV of the future cash flows under the lease at July 1, 2020. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.) Present value of the future cash flows under the lease $ Using Excel, prepare an amortization schedule for the lease liability over the term of the lease. (Round answers to 0 decimal places, e.g. 5,275.) Sheridan Inc. Lease Amortization Schedule Interest Reduction on Unpaid of Lease Obligation Obligation Annual Lease Payments Date Balance of Lease Obligation $ July 1, 2020 $ July 1, 2021 $ July 1, 2022 July 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 SHOW LIST OF ACCOUNTS Prepare the journal entries and any year-end (December 31) adjusting journal entries made by Sheridan Inc. in 2020 and up to and including July 1, 2021. (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 o for the amounts. Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit July 1, 2020 (To record inception of lease and first lease payment.) Dec. 31, 2020 (To record interest.) Dec. 31, 2020 (To record depreciation expense.) July 1, 2021 (To record lease payment.) Immediately after the July 1, 2021 lease payments, based on the feedback of the staff in operations, management reassesses its expectations for the guaranteed residual value. Management now estimates the fleet of trucks to have a residual value of $411,750 with a 50% probability and $309,300 with a 50% probability. Calculate the probability-weighted expected value of the residual at the end of the lease term. Also calculate the PV at July 1, 2021, of any additional cash flows related to the residual value guarantee. (Round answers to 0 decimal places, e.g. 5,275.) Probability-weighted expected value of residual $ Additional cash flows $ SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT Management now estimates the fleet of trucks to have a residual value of $411,750 with a 50% probability and $309,300 with a 50% probability. Prepare any necessary entry to implement the revision to the contractual lease rights and obligation at July 1, 2021. (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 o for the amounts. Round answers to 0 decimal places, e.g. 5,275.) Account Titles and Explanation Debit Credit July 1, 2021 Date Immediately after the July 1, 2021 lease payments, based on the feedback of the staff in operations, management reassesses its expectations for the guaranteed residual value. Management now estimates the fleet of trucks to have a residual value of $411,750 with a 50% probability and $309,300 with a 50% probability. Revise the amortization schedule effective July 1, 2021, for the lease, including any liability related to the residual value guarantee. (Round answers to I decimal places, e.g. 5,275. Do not leave any answer field blank. Enter o for amounts.) Sheridan Inc. Lease Amortization Schedule-Revised July 1, 2021 Interest Reduction on Unpaid of Lease Obligation Obligation Annual Lease Payments Date Balance of Lease Obligation $ July 1, 2022 $ 5 July 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 July 1, 2027 SHOW LIST OF ACCOUNTS Management now estimates the fleet of trucks to have a residual value of $411,750 with a 50% probability and $309,300 with a 50% probability. Prepare the year-end adjusting journal entries made by Sheridan Inc. for fiscal year 2021. (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 o for the amounts. Round answers to 0 decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit Dec. 31, 2021 (To record interest.) Dec. 31, 2021 (To record depreciation expense.) Question 4 Your employer, Sheridan Inc., is a large Canadian public company that uses IFRS 16. You have collected the following information about a lease for a fleet of trucks used by Sheridan to transport completed products to warehouses across the country. The trucks have an economic life of eight years. The lease term is from July 1, 2020, to June 30, 2027, and the company intends to lease the equipment for this period of time, so the lease term is seven years. The lease payment per year is $566,500, payable in advance, with no other payments required, and no renewal option or purchase option available. The expected value of the fleet of trucks at June 30, 2027, is $465,900; this value is guaranteed by Sheridan. The leased trucks must be returned to the lessor at the end of the lease. Sheridan's management is confident that, with an aggressive maintenance program, Sheridan has every reason to believe that the asset's residual value will be more than the guaranteed amount at the end of the lease term. Sheridan's incremental borrowing rate is 8%, and the rate implicit in the lease is not known. At the time the lease was signed, the fair value of the leased trucks was $3,185,362. 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 time value of money tables, a financial calculator, or Excel functions, determine the PV of the future cash flows under the lease at July 1, 2020. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.) Present value of the future cash flows under the lease $ Using Excel, prepare an amortization schedule for the lease liability over the term of the lease. (Round answers to 0 decimal places, e.g. 5,275.) Sheridan Inc. Lease Amortization Schedule Interest Reduction on Unpaid of Lease Obligation Obligation Annual Lease Payments Date Balance of Lease Obligation $ July 1, 2020 $ July 1, 2021 $ July 1, 2022 July 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 SHOW LIST OF ACCOUNTS Prepare the journal entries and any year-end (December 31) adjusting journal entries made by Sheridan Inc. in 2020 and up to and including July 1, 2021. (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 o for the amounts. Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit July 1, 2020 (To record inception of lease and first lease payment.) Dec. 31, 2020 (To record interest.) Dec. 31, 2020 (To record depreciation expense.) July 1, 2021 (To record lease payment.) Immediately after the July 1, 2021 lease payments, based on the feedback of the staff in operations, management reassesses its expectations for the guaranteed residual value. Management now estimates the fleet of trucks to have a residual value of $411,750 with a 50% probability and $309,300 with a 50% probability. Calculate the probability-weighted expected value of the residual at the end of the lease term. Also calculate the PV at July 1, 2021, of any additional cash flows related to the residual value guarantee. (Round answers to 0 decimal places, e.g. 5,275.) Probability-weighted expected value of residual $ Additional cash flows $ SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT Management now estimates the fleet of trucks to have a residual value of $411,750 with a 50% probability and $309,300 with a 50% probability. Prepare any necessary entry to implement the revision to the contractual lease rights and obligation at July 1, 2021. (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 o for the amounts. Round answers to 0 decimal places, e.g. 5,275.) Account Titles and Explanation Debit Credit July 1, 2021 Date Immediately after the July 1, 2021 lease payments, based on the feedback of the staff in operations, management reassesses its expectations for the guaranteed residual value. Management now estimates the fleet of trucks to have a residual value of $411,750 with a 50% probability and $309,300 with a 50% probability. Revise the amortization schedule effective July 1, 2021, for the lease, including any liability related to the residual value guarantee. (Round answers to I decimal places, e.g. 5,275. Do not leave any answer field blank. Enter o for amounts.) Sheridan Inc. Lease Amortization Schedule-Revised July 1, 2021 Interest Reduction on Unpaid of Lease Obligation Obligation Annual Lease Payments Date Balance of Lease Obligation $ July 1, 2022 $ 5 July 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 July 1, 2027 SHOW LIST OF ACCOUNTS Management now estimates the fleet of trucks to have a residual value of $411,750 with a 50% probability and $309,300 with a 50% probability. Prepare the year-end adjusting journal entries made by Sheridan Inc. for fiscal year 2021. (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 o for the amounts. Round answers to 0 decimal places, e.g. 5,275.) Date Account Titles and Explanation Debit Credit Dec. 31, 2021 (To record interest.) Dec. 31, 2021 (To record depreciation expense.)