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a. Identify the type of lease involved and give reasons for your classification. Discuss the accounting treatment that should be applied by the lessor. b. Prepare all the entries related to the lease contract and leased asset for the year 2022 for the lessee and lessor, assuming Abriendo uses straight-line depreciation for all similar leased assets, and Cleveland depreciates the asset on a straight-line basis with a residual value of R$15,000. c. Discuss what should be presented in the statement of financial position, the income statement, and the related notes of both the lessee and the lessor at December 31, 2022.

a. Identify the type of lease involved and give reasons for your classification. Discuss the accounting treatment that should be applied by the lessor. b. Prepare all the entries related to the lease contract and leased asset for the year 2022 for the lessee and lessor, assuming Abriendo uses straight-line depreciation for all similar leased assets, and Cleveland depreciates the asset on a straight-line basis with a residual value of R$15,000. c. Discuss what should be presented in the statement of financial position, the income statement, and the related notes of both the lessee and the lessor at December 31, 2022.

FINANCIAL ACCOUNTING
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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P21-15. Please show all workings clearly. 

P21.15 (LO 2, 3) Groupwork (Lessee-Lessor Entries, Lease with an Unguaranteed Residual Value) Cleveland Group leased a new crane to Abriendo Construction under a 5-year, non-cancelable contract starting January 1, 2022. Terms of the lease require payments of R$48,555 each January 1, starting January 1, 2022. The crane has an estimated life of 7 years, a fair value of R$240,000, and a cost to Cleveland of R$240,000. The estimated fair value of the crane is expected to be R$45,000 (unguaranteed) at the end of the lease term. No bargain purchase or renewal options are included in the contract, and the crane is not a specialized asset. Both Cleveland and Abriendo adjust and close books annually at December 31. Collectibility of the lease payments is probable. Abriendo's incremental borrowing rate is 8%, and Cleveland's implicit interest rate of 8% is known to Abriendo. Instructions a. Identify the type of lease involved and give reasons for your classification. Discuss the accounting treatment that should be applied by the lessor. b. Prepare all the entries related to the lease contract and leased asset for the year 2022 for the lessee and lessor, assuming Abriendo uses straight-line depreciation for all similar leased assets, and Cleveland depreciates the asset on a straight-line basis with a residual value of R$15,000. c. Discuss what should be presented in the statement of financial position, the income statement, and the related notes of both the lessee and the lessor at December 31, 2022.
Transcribed Image Text:P21.15 (LO 2, 3) Groupwork (Lessee-Lessor Entries, Lease with an Unguaranteed Residual Value) Cleveland Group leased a new crane to Abriendo Construction under a 5-year, non-cancelable contract starting January 1, 2022. Terms of the lease require payments of R$48,555 each January 1, starting January 1, 2022. The crane has an estimated life of 7 years, a fair value of R$240,000, and a cost to Cleveland of R$240,000. The estimated fair value of the crane is expected to be R$45,000 (unguaranteed) at the end of the lease term. No bargain purchase or renewal options are included in the contract, and the crane is not a specialized asset. Both Cleveland and Abriendo adjust and close books annually at December 31. Collectibility of the lease payments is probable. Abriendo's incremental borrowing rate is 8%, and Cleveland's implicit interest rate of 8% is known to Abriendo. Instructions a. Identify the type of lease involved and give reasons for your classification. Discuss the accounting treatment that should be applied by the lessor. b. Prepare all the entries related to the lease contract and leased asset for the year 2022 for the lessee and lessor, assuming Abriendo uses straight-line depreciation for all similar leased assets, and Cleveland depreciates the asset on a straight-line basis with a residual value of R$15,000. c. Discuss what should be presented in the statement of financial position, the income statement, and the related notes of both the lessee and the lessor at December 31, 2022.
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