Question
The following facts are for a non-cancellable lease agreement between Oriole 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 Oriole 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 $20,954.73 Bargain purchase option price at end of lease term reasonably certain to be exercised by Russell $3,900.00 Lease term 5 years Economic life of leased equipment 10 years Lessors cost $43,800.00 Fair value of asset at July 1, 2020 $89,800.00 Lessors implicit rate 10% Lessees incremental borrowing rate 10% 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 Oriole use IFRS 16.
Required:
Prepare a lease amortization schedule for the lease obligation using a computer spreadsheet for Russell Corporation for the five-year lease term. (Present value of an annuity of 1 for 5 years, 9% discounted rate is 4.23972 and single sum of present value is 0.64993). Prepare the journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2020 and 2021. Russells annual accounting period ends on December 31, and Russell does not use reversing entries.
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