Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Sondheim Ltd. entered into a lease with New Age Leasing Corp. The lease is for new specialized factory equipment that has a fair value of

image text in transcribed

Sondheim Ltd. entered into a lease with New Age Leasing Corp. The lease is for new specialized factory equipment that has a fair value of $2,937,000. The expected useful life of the equipment is 10 years, although its physical life is 12 years. The initial lease term begins on 1 April 20x2 and runs for 10 years. Annual lease payments are $380,400, payable at the beginning of each lease year. After the initial lease term, Sondheim has the option of renewing the lease on a year-by-year basis for as long as Sondheim wishes. Since the equipment will be obsolete by that time, Sondheim is not interested in obtaining title to the equipment. Other information is as follows: (Round intermediate calculations and final answers to the nearest whole dollar amount.) The interest rate implicit in the lease is 8% (known by Sondheim); Sondheim's incremental borrowing rate is 7%. . Sondheim will amortize the equipment on a straight-line basis and has a 31 December fiscal year-end. (PV of $1, PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the journal entries relating to the lease liability and the leased equipment for Sondheim for 20X2, including all appropriate adjusting entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list 1 Record the commencement of lease. > 2 Record the 1st lease payment. 3 Record the depreciation expense. 4 Record the interest expense. Credit 2. What amounts will appear on Sondheim's SFP and SCF for the year ended 31 December 20X2? Statement of financial position: Equipment under lease Accumulated depreciationleased equipment $ 0 Lease liability - current Lease liability - long-term Cash flow statement: Operating activities, non-cash items add-backs: Depreciation expense Interest expense Financing activities - lease payment Sondheim Ltd. entered into a lease with New Age Leasing Corp. The lease is for new specialized factory equipment that has a fair value of $2,937,000. The expected useful life of the equipment is 10 years, although its physical life is 12 years. The initial lease term begins on 1 April 20x2 and runs for 10 years. Annual lease payments are $380,400, payable at the beginning of each lease year. After the initial lease term, Sondheim has the option of renewing the lease on a year-by-year basis for as long as Sondheim wishes. Since the equipment will be obsolete by that time, Sondheim is not interested in obtaining title to the equipment. Other information is as follows: (Round intermediate calculations and final answers to the nearest whole dollar amount.) The interest rate implicit in the lease is 8% (known by Sondheim); Sondheim's incremental borrowing rate is 7%. . Sondheim will amortize the equipment on a straight-line basis and has a 31 December fiscal year-end. (PV of $1, PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the journal entries relating to the lease liability and the leased equipment for Sondheim for 20X2, including all appropriate adjusting entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list 1 Record the commencement of lease. > 2 Record the 1st lease payment. 3 Record the depreciation expense. 4 Record the interest expense. Credit 2. What amounts will appear on Sondheim's SFP and SCF for the year ended 31 December 20X2? Statement of financial position: Equipment under lease Accumulated depreciationleased equipment $ 0 Lease liability - current Lease liability - long-term Cash flow statement: Operating activities, non-cash items add-backs: Depreciation expense Interest expense Financing activities - lease payment

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Sustainability Accounting And Accountability

Authors: Matias Laine, Helen Tregidga, Jeffrey Unerman

3rd Edition

1032023104, 9781032023106

More Books

Students also viewed these Accounting questions

Question

What is the work environment like? Friendly/collegial?

Answered: 1 week ago

Question

How appropriate is it to conduct additional research?

Answered: 1 week ago

Question

What information remains to be obtained?

Answered: 1 week ago