the question is given and the solution as well. i just need to understand how the things i marked with a ? were calculated please.

Transcribed image text: A21-15 Error Correction-Lease: 2004 JE to restablish - the correct July 20X2, Giovanni Inc, lease balance base was for five years at $240,000 per puter equipment through the leasing subsidiary of Giovanni's bank. The Initial lease payment as prepaid rent yeur, payable at the beginning of each lease year. Giovanni recorded the ized it to rent expense at the end of each month. April 20X4, the controller determined that the lense had been incorrectly reported as an operating lease: 1 should have been accounted for as us in finance lease. The implicit interest rate in the lease was 6%. Giovanni uses straight-line depreciation for equipment The company's income tax rate is 25%. The change relates temporary differences and thus deferred tax is affected. Required: overstated us. understal 1. What effect will this correction have his correction have on the financial statements for 20X2 and 20X3? Provide the financial statements for 20% calculations. The lease liability may be stated in total on the SFP: it is not necessary to subdivide the liability into current and long-term portions. 2. Prepare the necessary journal entries to correct lease accounting as of 1 January 20X4. Assignment 21-15 Requirement 1 Calculations PV = $240,000 ? * Adjustment = column 1 minus column 2 + For 20x3 income tax and retained earnings, the summary amount of the adjustment is the cumulative adjustment for the two years. FP accounts for the sums of the changes Requirement 2 The journal entry must restate all of the above SFP accounts for the sums of the identified above for both 20X2 and 20X3: Assets under finance lease............. . .. 1,071,626 Retained earnings............... 22,974 Deferred income tax .......... 7,658 Accumulated depreciation, leased assets..... Prepaid rent............... Lease liability........ 321,488 120,000 660,770 Transcribed image text: A21-15 Error Correction-Lease: 2004 JE to restablish - the correct July 20X2, Giovanni Inc, lease balance base was for five years at $240,000 per puter equipment through the leasing subsidiary of Giovanni's bank. The Initial lease payment as prepaid rent yeur, payable at the beginning of each lease year. Giovanni recorded the ized it to rent expense at the end of each month. April 20X4, the controller determined that the lense had been incorrectly reported as an operating lease: 1 should have been accounted for as us in finance lease. The implicit interest rate in the lease was 6%. Giovanni uses straight-line depreciation for equipment The company's income tax rate is 25%. The change relates temporary differences and thus deferred tax is affected. Required: overstated us. understal 1. What effect will this correction have his correction have on the financial statements for 20X2 and 20X3? Provide the financial statements for 20% calculations. The lease liability may be stated in total on the SFP: it is not necessary to subdivide the liability into current and long-term portions. 2. Prepare the necessary journal entries to correct lease accounting as of 1 January 20X4. Assignment 21-15 Requirement 1 Calculations PV = $240,000 ? * Adjustment = column 1 minus column 2 + For 20x3 income tax and retained earnings, the summary amount of the adjustment is the cumulative adjustment for the two years. FP accounts for the sums of the changes Requirement 2 The journal entry must restate all of the above SFP accounts for the sums of the identified above for both 20X2 and 20X3: Assets under finance lease............. . .. 1,071,626 Retained earnings............... 22,974 Deferred income tax .......... 7,658 Accumulated depreciation, leased assets..... Prepaid rent............... Lease liability........ 321,488 120,000 660,770