Simulation _ CPA1.1

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11/26/23, 12:24 AM Simulation | CPA https://cpa.becker.com/module/F-06-02/V4.3/sim/session 1/3 From Bentley's perspective, provide the journal entries for the following: From Acwen's perspective, provide the journal entries for the following:

11/26/23, 12:24 AM Simulation | CPA https://cpa.becker.com/module/F-06-02/V4.3/sim/session 2/3 For these questions, it is helpful to see the amortization table that relates to this lease. The ROU asset is the present value of a series of eight (8) payments of 30,000 at a semiannual rate of 2.175 percent (4.35 percent annual rate). Using the factor 7.27053, the calculated ROU asset is $218,116. The table below shows how the payments every six months are broken out into interest and ROU asset amortization. Date Lease Expense (straight-line) Interest on Liability (4.35% annual = 2.175% semiannual rate) Amortization of ROU Asset Carrying Value of ROU Asset 218,116 6/30/Year 1 30,000 4,744 25,256 192,860 12/31/Year 1 30,000 4,195 25,805 167,055 6/30/Year 2 30,000 3,633 26,367 140,688 12/31/Year 2 30,000 3,060 26,940 113,748 6/30/Year 3 30,000 2,474 27,526 86,222 12/31/Year 3 30,000 1,875 28,125 58,097 6/30/Year 4 30,000 1,264 28,736 29,361 12/31/Year 4 30,000 639 29,361 (0) 240,000 21,884 218,116 1. As noted above, the ROU asset of $218,116 is calculated by applying the appropriate factor to the $30,000 payments. The lease liability is equal to the ROU asset at the initiation of the lease. 2. The ±rst payment on June 30, Year 1, of $30,000 is broken out into interest ($218,116 initial lease liability × 0.02175 = $4,744) and ROU asset amortization (the remaining $25,256). 3. The new carrying value of both the ROU asset and lease liability after the June 30 payment is $192,860. For the December 31, Year 1, payment, interest is $4,195 ($192,860 × 0.02175) and the remaining $25,805 reduces the asset and the lease liability.

11/26/23, 12:24 AM Simulation | CPA https://cpa.becker.com/module/F-06-02/V4.3/sim/session 3/3 4. Total interest paid is shown in the table above, but can always be calculated by comparing the summation of the payments $240,000 ($30,000 × 8) to the original lease liability of $218,116—a di²erence of $21,884. 5. The initial journal entry for the lessor is the receivable, which re³ects eight payments of $30,000 each, along with a liability re³ecting deferred revenue. 6. Each journal entry will be the same for the lessor. In this case, Acwen receives cash of $30,000, which eliminates $30,000 in receivables. $30,000 is also moved from unearned lease rental income into rental income. Finally, the $400,000 asset that remains on Acwen's books is depreciated straight-line over an eight-year useful life, with half of that amount re³ected every six months. 7. See the explanation for No. 6 above. 8. The lessor does not book interest income, as the entire payment received each period is re³ected as rental income.

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