QUESTION DATA: Black Manufacturing Co. agreed to lease machinery to White Inc. Details of the lease agreement are as follows 11). The non-cancellabile loase term is 5 years, beginning August 1, 2020, with the first annual payment of $82,820 due immediately 12). The fair market value of the land machinery on August 1, 2020 h $400,000. The equipment cost Black $300,000 to manufacture (3). The implicit rate in the lease is 5% (4). The machinery has an economic life of 6 years. (5). Both companies depreciate all capital assets using the straight line method (6) White Inc. has a bargain option to purchase the machinery for $30,000 at the end of the lease term. The fair market value of the machinery at that time is expected to be 560,000. m. Collectibility of the lease payments is reasonably predictable. There are no important uncertainties surrounding the amount of costs yet to be incurred by Black Manufacturing Co. 18). Both companies have a December 31 year end and follow ASPE REQUIRED: Complete the specific steps below. Step 1: Lease classification criteria both for the lessee and Lessor and for IFRS and ASPE has been provided below. Select whether the criteria test is needed for Black Manufacturing Co. (lessor using the drop-down box provided (Yes/No). Step 2 For all the criteria you concluded is applicable in Step 1 (test answered "YES"), complete the actual test in the blue cells provided. Make sure to show all your work in accordance with the accounting standards applied by the Lessor. If the test is not required, leave the blue cell BLANK Step 3: Select an appropriate conclusion from the drop down box provided. Only select a conclusion for those tests performed in Step 2. Lease criteria test Step 1: Required test? Step 2: Applicable test completed (if test is not needed, leave BLANK) Step 3: Conclude if Step 2 blank, leave BLANK here) Low valued asset Short-term lease Transfer of ownership Economic life test Rate na PMT FV = Substantial recovery test E 30 Type - PV 33 Specialized asset Normal credit risk All costs known Step 4: Assume Blank Manufacturing Co. concludes the lease to be a capital lease Select using the drop-down box the specific type of lease. Explain why you made your selection Specific type of lease: Explanation why Step 5: Complete the amortization schedule given below. Only those cells in blue require completion. Do not leave a blue cell blank. If it is sero, insert met Round all interest amount to the nearest whole number Date Payment Interest Aug. 1/20 Aug. 1/20 Aug. 1/21 582,820 Principal Carrying Value $ 400,000 $ 82.820 15,859 250,219 Step 6: Prepare the journal entries required from August 1, 2020 to August 1, 2021 for Black Manufacturing Co. Round all interest entries to the nearest whole dollar using the ROUND formula. Use the description under the date to help with the ordering of the journal entries. Date Account Title Debit Credit Aug. 1/20 Lease start D H Aug. 1/20 P1 66 67 Dec. 31/20 Y/E Aug. 1/21 P2 70 71 72 33 TS Step 7: Prepare the journal entry for Black Manufacturing Co. on August 1, 2025 (the end of the lease), assuming White Inc exercises the option to purchase the machinery. Any interest earned from the last payment date can be ignored, Date Account Title Debit Credit Aug. 1/25 QUESTION DATA: Black Manufacturing Co. agreed to lease machinery to White Inc. Details of the lease agreement are as follows 11). The non-cancellabile loase term is 5 years, beginning August 1, 2020, with the first annual payment of $82,820 due immediately 12). The fair market value of the land machinery on August 1, 2020 h $400,000. The equipment cost Black $300,000 to manufacture (3). The implicit rate in the lease is 5% (4). The machinery has an economic life of 6 years. (5). Both companies depreciate all capital assets using the straight line method (6) White Inc. has a bargain option to purchase the machinery for $30,000 at the end of the lease term. The fair market value of the machinery at that time is expected to be 560,000. m. Collectibility of the lease payments is reasonably predictable. There are no important uncertainties surrounding the amount of costs yet to be incurred by Black Manufacturing Co. 18). Both companies have a December 31 year end and follow ASPE REQUIRED: Complete the specific steps below. Step 1: Lease classification criteria both for the lessee and Lessor and for IFRS and ASPE has been provided below. Select whether the criteria test is needed for Black Manufacturing Co. (lessor using the drop-down box provided (Yes/No). Step 2 For all the criteria you concluded is applicable in Step 1 (test answered "YES"), complete the actual test in the blue cells provided. Make sure to show all your work in accordance with the accounting standards applied by the Lessor. If the test is not required, leave the blue cell BLANK Step 3: Select an appropriate conclusion from the drop down box provided. Only select a conclusion for those tests performed in Step 2. Lease criteria test Step 1: Required test? Step 2: Applicable test completed (if test is not needed, leave BLANK) Step 3: Conclude if Step 2 blank, leave BLANK here) Low valued asset Short-term lease Transfer of ownership Economic life test Rate na PMT FV = Substantial recovery test E 30 Type - PV 33 Specialized asset Normal credit risk All costs known Step 4: Assume Blank Manufacturing Co. concludes the lease to be a capital lease Select using the drop-down box the specific type of lease. Explain why you made your selection Specific type of lease: Explanation why Step 5: Complete the amortization schedule given below. Only those cells in blue require completion. Do not leave a blue cell blank. If it is sero, insert met Round all interest amount to the nearest whole number Date Payment Interest Aug. 1/20 Aug. 1/20 Aug. 1/21 582,820 Principal Carrying Value $ 400,000 $ 82.820 15,859 250,219 Step 6: Prepare the journal entries required from August 1, 2020 to August 1, 2021 for Black Manufacturing Co. Round all interest entries to the nearest whole dollar using the ROUND formula. Use the description under the date to help with the ordering of the journal entries. Date Account Title Debit Credit Aug. 1/20 Lease start D H Aug. 1/20 P1 66 67 Dec. 31/20 Y/E Aug. 1/21 P2 70 71 72 33 TS Step 7: Prepare the journal entry for Black Manufacturing Co. on August 1, 2025 (the end of the lease), assuming White Inc exercises the option to purchase the machinery. Any interest earned from the last payment date can be ignored, Date Account Title Debit Credit Aug. 1/25
