Question
Soaring Pieces Inc. creates aluminum alloy parts for commercial aircraft. In a recent transaction Soaring leased a high precision lathe machine from Rapid Revolving Corp.
Soaring Pieces Inc. creates aluminum alloy parts for commercial aircraft. In a recent transaction Soaring leased a high precision lathe machine from Rapid Revolving Corp. on January 1, 2019. The following information pertains to the leased asset and the lease agreement:
Lease provisions |
|
Lease term | 5 years |
Annual payment | 40,000 |
Payment frequency | Annual |
Start date of lease | January 1 |
First payment due | Commencement date of lease |
Guaranteed residual value | $15,000 |
Interest rate implicit in the lease (not readily determinable by lessee) | 7% |
Lessee's incremental borrowing rate | 8% |
The lathe machine will revert back to the lessor at end of lease term, title does not transfer to lessee at any time, and there is not a bargain purchase option.
Required:
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Determine the amount the right-of use asset and lease liability are initially measured at from the perspective of the lessee. Show all of your inputs and calculations.
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Prepare the journal enteries on january 1,2019, december 31,2019 and january 1,2020 for the lessee.
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