Simulation (20 minutes) We Move For You (WMFY) is a moving company operating out of Edmonton. The company provides packing and moving services across Western Canada. WMFY also operates a small retail location where customers can book moving services and purchase moving supplies including boxes, packing paper, and tape. The company has a December 31 year end and reports under IFRS. The following documents are attached: Appendix I: Extracts from internal statement of financial position as at November 30, 2020 Appendix II: Truck lease agreement Complete the tasks in the Excel Task file. Appendix 1: Extracts from internal statement of financial position as at November 30, 2020 EXTRACTS FROM INTERNAL STATEMENT OF FINANCIAL POSITION as at November 30, 2020 Notes 1 Right-of-use asset - net Lease liability 198,000 225,853 2 1. The right-of-use asset - net account represents the leased retail space. The space is being depreciated on a straight-line basis over the 15-year lease term, which commenced on January 1, 2015. To date, no depreciation has been recognized for 2020, as depreciation is recorded annually. 2. The lease liability represents the obligation related to the leased retail space. The lease agreement requires payments of $2,990 per month, payable at the end of the month. The interest rate implicit in the lease is 9% annually. Lease payments to November 30, 2020, have been recorded correctly. Appendix II: Truck lease agreement THIS LEASE AGREEMENT for a leased truck is made effective as of the 15th day of February 2021 between: United Trucks Ltd. (the lessor") and We Move For You (the lessee") LEASE TERM The term of the lease will be eight years from the effective date of this agreement. LEASE PAYMENTS Monthly lease payments will be in the amount of $6,000, with payment due on the 15th day of each calendar month. This agreement assumes that the leased vehicle will not be driven in excess of 12,500 kilometres per month. For each kilometre driven in excess of this amount, the lessee will pay the lessor $1 per kilometre. Kilometres driven will be tracked and reported to the lessor each month, with supporting documentation provided. Payments for excess kilometres will be made on a semi-annual basis. The first payment date for excess kilometres, if applicable, will be the 15th day of August 2021. ADDITIONAL COSTS The lessee will pay the lessor $8,500 for costs incurred to deliver the leased vehicle to the lessee's locations. This payment will be due on the 15th day of February 2021. END OF INITIAL LEASE TERM If, at the termination date of this lease agreement, the lessee wishes to purchase the leased vehicle, the lessee may do so at a price of $130,000. Alternatively, the lease may be extended for another four years, at a monthly lease payment of $4,000. Based on the draft work hicle is WMFY leases the space for its retail location. Prepare the journal entry for the lease payment made December 31, 2020, related to this retail lease. In addition, prepare the journal entry for any depreciation to be recognized for 2020. (Note that the company records depreciation annually). Appendix I provides relevant information from the November 30, 2020, financial statement Instructions: In Column A, select the appropriate account name from the drop-down list. An account name may be used once or not at all for each journal entry. In Column B, enter the corresponding debit amount. Round all amounts to the nearest dollar. In Column C, enter the corresponding credit amount. Round all amounts to the nearest dollar. All rows in the table may not be needed to complete the journal entries. If no journal entry is needed, check the "No journal entry required" box at the top of the table as your response. Journal entry #1 - To record the lease payment made on December 31, 2020. No journal entry required B C 1 Account name Debit amount Credit amount 5 2 5 3 74 B 5 3 6 07 1 Column A drop-down options 3 Cash 4 Right-of-use asset Accumulated depreciation right-of-use asset 35 36 Lease liability 87 Lease expense Interest expense 39 Depreciation expense Journal entry #2To record the depreciation for the year on the leased retail space December 31, 2020. 30 No journal entry required 7 B c 5 1 Account name Debit amount Credit amount 3 34 95 16 7 Column A drop-down options Cash Right-of-use asset Accumulated depreciation right-of-use asset Lease liability Lease expense Interest expense Depreciation expense Task 2 it is now February 15, 2021. WMFY has leased a new truck to meet growing demand for its moving services. Using the table below, identify the components to be considered in the determination of the initial lease liability. The lease agreement is included in Appendix II. Instructions: In Column C, indicate whether the item listed should be included in the determination of the lease liability by selecting "Yes" or "No" from the drop- down list In Column D, select the best explanation to support your conclusion in Column C. B C D Is the item a component of 1 Item Amount lease liability? Explanation 2 Fixed payments $6,000/ Yes Represents the monthly fixed payment amount paid on a regular basis. month 3 Variable payments $2,500/ month 4 Delivery costs $8,500 5 Purchase option $130,000 D3 drop-down options The variable payments are included because they can be estimated at the commencement of the lease. The variable payments are included because they depend on an index or a rate. Variable payments are never a component of the initial measurement of a lease liability. The variable payments are excluded because they do not depend on an index or a rate. The variable payments are excluded because they cannot be estimated at the commencement of the lease. D4 drop-down options The delivery costs are included because they can be estimated at the commencement of the lease The delivery costs are included because they are initial direct costs. The delivery costs are included because they are outlined in the lease agreement. The delivery costs are excluded because they are not related to right of use but instead to getting the asset ready for use. The delivery costs are excluded because they cannot be estimated at the commencement of the lease D5 drop-down options The purchase option price is included because it is reasonably certain that the lessee will exercise the option The purchase option price is included because the purchase price represents a bargain purchase option The purchase option price is included because the purchase option is outlined in the lease agreement The purchase option price is excluded because the purchase price does not representa bargain purchase option. The purchase option price is excluded because it is not reasonably certain that the lessee will exercise the option Simulation (20 minutes) We Move For You (WMFY) is a moving company operating out of Edmonton. The company provides packing and moving services across Western Canada. WMFY also operates a small retail location where customers can book moving services and purchase moving supplies including boxes, packing paper, and tape. The company has a December 31 year end and reports under IFRS. The following documents are attached: Appendix I: Extracts from internal statement of financial position as at November 30, 2020 Appendix II: Truck lease agreement Complete the tasks in the Excel Task file. Appendix 1: Extracts from internal statement of financial position as at November 30, 2020 EXTRACTS FROM INTERNAL STATEMENT OF FINANCIAL POSITION as at November 30, 2020 Notes 1 Right-of-use asset - net Lease liability 198,000 225,853 2 1. The right-of-use asset - net account represents the leased retail space. The space is being depreciated on a straight-line basis over the 15-year lease term, which commenced on January 1, 2015. To date, no depreciation has been recognized for 2020, as depreciation is recorded annually. 2. The lease liability represents the obligation related to the leased retail space. The lease agreement requires payments of $2,990 per month, payable at the end of the month. The interest rate implicit in the lease is 9% annually. Lease payments to November 30, 2020, have been recorded correctly. Appendix II: Truck lease agreement THIS LEASE AGREEMENT for a leased truck is made effective as of the 15th day of February 2021 between: United Trucks Ltd. (the lessor") and We Move For You (the lessee") LEASE TERM The term of the lease will be eight years from the effective date of this agreement. LEASE PAYMENTS Monthly lease payments will be in the amount of $6,000, with payment due on the 15th day of each calendar month. This agreement assumes that the leased vehicle will not be driven in excess of 12,500 kilometres per month. For each kilometre driven in excess of this amount, the lessee will pay the lessor $1 per kilometre. Kilometres driven will be tracked and reported to the lessor each month, with supporting documentation provided. Payments for excess kilometres will be made on a semi-annual basis. The first payment date for excess kilometres, if applicable, will be the 15th day of August 2021. ADDITIONAL COSTS The lessee will pay the lessor $8,500 for costs incurred to deliver the leased vehicle to the lessee's locations. This payment will be due on the 15th day of February 2021. END OF INITIAL LEASE TERM If, at the termination date of this lease agreement, the lessee wishes to purchase the leased vehicle, the lessee may do so at a price of $130,000. Alternatively, the lease may be extended for another four years, at a monthly lease payment of $4,000. Based on the draft work hicle is WMFY leases the space for its retail location. Prepare the journal entry for the lease payment made December 31, 2020, related to this retail lease. In addition, prepare the journal entry for any depreciation to be recognized for 2020. (Note that the company records depreciation annually). Appendix I provides relevant information from the November 30, 2020, financial statement Instructions: In Column A, select the appropriate account name from the drop-down list. An account name may be used once or not at all for each journal entry. In Column B, enter the corresponding debit amount. Round all amounts to the nearest dollar. In Column C, enter the corresponding credit amount. Round all amounts to the nearest dollar. All rows in the table may not be needed to complete the journal entries. If no journal entry is needed, check the "No journal entry required" box at the top of the table as your response. Journal entry #1 - To record the lease payment made on December 31, 2020. No journal entry required B C 1 Account name Debit amount Credit amount 5 2 5 3 74 B 5 3 6 07 1 Column A drop-down options 3 Cash 4 Right-of-use asset Accumulated depreciation right-of-use asset 35 36 Lease liability 87 Lease expense Interest expense 39 Depreciation expense Journal entry #2To record the depreciation for the year on the leased retail space December 31, 2020. 30 No journal entry required 7 B c 5 1 Account name Debit amount Credit amount 3 34 95 16 7 Column A drop-down options Cash Right-of-use asset Accumulated depreciation right-of-use asset Lease liability Lease expense Interest expense Depreciation expense Task 2 it is now February 15, 2021. WMFY has leased a new truck to meet growing demand for its moving services. Using the table below, identify the components to be considered in the determination of the initial lease liability. The lease agreement is included in Appendix II. Instructions: In Column C, indicate whether the item listed should be included in the determination of the lease liability by selecting "Yes" or "No" from the drop- down list In Column D, select the best explanation to support your conclusion in Column C. B C D Is the item a component of 1 Item Amount lease liability? Explanation 2 Fixed payments $6,000/ Yes Represents the monthly fixed payment amount paid on a regular basis. month 3 Variable payments $2,500/ month 4 Delivery costs $8,500 5 Purchase option $130,000 D3 drop-down options The variable payments are included because they can be estimated at the commencement of the lease. The variable payments are included because they depend on an index or a rate. Variable payments are never a component of the initial measurement of a lease liability. The variable payments are excluded because they do not depend on an index or a rate. The variable payments are excluded because they cannot be estimated at the commencement of the lease. D4 drop-down options The delivery costs are included because they can be estimated at the commencement of the lease The delivery costs are included because they are initial direct costs. The delivery costs are included because they are outlined in the lease agreement. The delivery costs are excluded because they are not related to right of use but instead to getting the asset ready for use. The delivery costs are excluded because they cannot be estimated at the commencement of the lease D5 drop-down options The purchase option price is included because it is reasonably certain that the lessee will exercise the option The purchase option price is included because the purchase price represents a bargain purchase option The purchase option price is included because the purchase option is outlined in the lease agreement The purchase option price is excluded because the purchase price does not representa bargain purchase option. The purchase option price is excluded because it is not reasonably certain that the lessee will exercise the option