Question
The following facts are for a non-cancellable lease agreement between Pharoah Corporation and Russell Corporation, a lessee: Inception date July 1, 2020 Annual lease payment
The following facts are for a non-cancellable lease agreement between Pharoah Corporation and Russell Corporation, a lessee:
| Inception date | July 1, 2020 | ||
| Annual lease payment due at the beginning of each year, starting July 1, 2020 | $ | 20,585.16 | |
| Bargain purchase option price at end of lease term reasonably certain to be exercised by Russell | $ | 4,500.00 | |
| Lease term | 5 years | ||
| Economic life of leased equipment | 10 years | ||
| Lessors cost | $ | 43,600.00 | |
| Fair value of asset at July 1, 2020 | $ | 90,200.00 | |
| Lessors implicit rate | 9% | ||
| Lessees incremental borrowing rate | 9% | ||
The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties about costs that have not yet been incurred by the lessor. The lessee assumes responsibility for all executory costs. Both Russell and Pharoah use IFRS 16. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE.
Calculate the amount of gross investment at the inception of the lease for Pharoah Corporation, the lessor. (Round answers to 2 decimal places, e.g. 52.75.)
| Gross investment | $ Enter your answer in accordance to the question statement |
Calculate the amount of net investment at the inception of the lease for Pharoah Corporation, the lessor. (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places, e.g. 52.75.)
| Net investment | $ Enter your answer in accordance to the question statement |
Prepare a lease amortization schedule using a computer spreadsheet for Pharoah Corporation for the five-year lease term. (Round answers to 2 decimal places, e.g. 52.75.)
| Pharoah Leasing Corporation (Lessor) Lease Amortization Schedule | |||||||||
| Date | Annual Lease Payment Plus PO | Interest on Net Investment | Net Investment Recovery | Balance of Net Investment | |||||
| 7/1/20 | $ | ||||||||
| 7/1/20 | $ | $ | |||||||
| 7/1/21 | $ | ||||||||
| 7/1/22 | |||||||||
| 7/1/23 | |||||||||
| 7/1/24 | |||||||||
| 6/30/24 | |||||||||
| $ | $ | $ | |||||||
Prepare the journal entries to reflect the signing of the lease and to record the receipts and income related to this lease for the years 2020, 2021, and 2022. The lessors accounting period ends on December 31, and Pharoah Corporation does not use reversing entries. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 52.75.)
| Date | Account Titles and Explanation | Debit | Credit |
| 7/1/20 | |||
| (To record lease and cost of goods sold.) | |||
| 7/1/2012/31/207/1/2112/31/217/1/2212/31/22 | |||
| (To record interest.) | |||
| 7/1/2012/31/207/1/2112/31/217/1/2212/31/22 | |||
| (Collection of lease payment.) | |||
| 7/1/2012/31/207/1/2112/31/217/1/2212/31/22 | |||
| (To record interest.) | |||
| 7/1/2012/31/207/1/2112/31/217/1/2212/31/22 | |||
| (To record interest.) | |||
| 7/1/2012/31/207/1/2112/31/217/1/2212/31/22 | |||
| (Collection of lease payment.) | |||
| 7/1/2012/31/207/1/2112/31/217/1/2212/31/22 | |||
| (To record interest.) | |||
| 7/1/2012/31/207/1/2112/31/217/1/2212/31/22 | |||
| (To record interest.) |
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The Psychology Of People In Organisations
Authors: Angela Mansi, Melanie Ashleigh
1st Edition
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