Information has been gathered on the following lease:The fair value of the equipment is $600,000 at the beginning of the lease.The lease term is 5 years.Annual lease payments are $125,000, and payments are due at the beginning of each lease year.The lease contains a purchase option for the asset of $16,000 at the end of the lease term which is expected to be exercised.The lessor's implicit rate of interest in the lease is 6%; the lessee's incremental borrowing rate is 8%.Required:Assuming the lessee follows IFRS, calculate the value of the right-of-use asset for the lease and prepare the initial journal entry for the lessee. Round amounts to the nearest dollar.

Given as, Fair value= $600, 000, Lease term= 5 years.

Answered: 000, and payments are due at the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Information has been gathered on the following lease:

The fair value of the equipment is $600,000 at the beginning of the lease.
The lease term is 5 years.
Annual lease payments are $125,000, and payments are due at the beginning of each lease year.
The lease contains a purchase option for the asset of $16,000 at the end of the lease term which is expected to be exercised.
The lessor's implicit rate of interest in the lease is 6%; the lessee's incremental borrowing rate is 8%.

Required:

Assuming the lessee follows IFRS, calculate the value of the right-of-use asset for the lease and prepare the initial journal entry for the lessee. Round amounts to the nearest dollar.

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